RAND WATER ANNUAL REPORT 2023

Consolidated Annual Financial Statements for the year ended 30 June 2023

Summary of Principal Accounting Policies and Significant Judgements 3.13 Revenue from contracts with customers (Continued)

The payment terms are clearly identifiable for the goods to be transferred.

The contract has commercial and or legislative substance as aligned to the provisions of the PFMA and the WSA.

It is probable that the Group will collect the consideration to which it will be entitled, in exchange for the water that will be transferred to the customer.

The credit management committee assesses at contract inception the credit profile of the customer.

The Group assesses the ability and intent of the customer to pay when the consideration becomes due, which may reflect that the probability to collect may not be met. The following are the triggers that will be assessed on an ongoing basis to establish the customer’s ability and intent to pay, either of the following probability of default must be met: • Court order that enforces the supply or delivery of services or goods under unfavourable conditions to the Group; or • Socio‑Political factors that impact the supply or delivery of services/goods under unfavourable conditions to the Group or; • Composite of customer base (Indigent vs Urban areas); • Economic strength of the customer; • A municipality that has been place under Section 136, 137, 139 and/or 154 of the Municipal Finance Management Act (MFMA) or an entity that is placed on business rescue or liquidation, with no payment arrangement in place or; • Initiation of the Inter‑Governmental Relations Act process or; • Non‑payment for three consecutive months or; • Formal written communication indicating the customer’s inability to meet its obligations as they become due. Where probability of default criteria is met, the Group shall not recognise revenue from the date when the entity became aware of the applicable trigger. Subsequent to the probability of default criteria being met, revenue will be recognised on a cash basis, until the probability of default is remedied. Where the probability of default criteria is subsequently not met, the Group recognises revenue on an accrual basis in line with the provisions of IFRS 15.

Price adjustments:

Price adjustments can result from settlement arrangements with customers, which may impact on the revenue that the entity recognises. These settlement arrangements refer to those that reflect that the entities ability and intent may not be probable.

Step 2: Identify the performance obligation in the contract

The entity supplies water and installation of services, which together are distinct performance obligations. These services are supplied together.

Step 3: Determine transaction price

Amounts payable are identified in terms of the contract and are driven by the agreed terms between the entity and the customer.

Installation services are charged once off as capital contribution and are established per contract.

Sale of potable water is in respect of units of water supplied and the gazetted price for the area of service and type of customer.

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