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)

Recoverable Projects

Revenue from recoverable projects is recognised upon meeting the recognition criteria as defined in IFRS 15. The IFRS 15 revenue recognition model is similar to potable water in steps 1, 3 and 4.

Step 2: Identify the performance obligation in the contract

In addition to the steps defined under revenue from potable water, the Group recognises a contract asset in the due to/due from account.

A contract asset is defined as the entity’s right to consideration in exchange for goods or services that the entity has transferred to a customer, when that right is conditioned on something other than the passage of time, for example the entity’s future performance.

When the Group has already performed some work as per contract agreement, but has not yet billed, a due to/due from is recognised, until the conditions are fulfilled.

Upon fulfillment of the conditions in a contract, the Group recognises revenue and debit’s the due to/ due from account.

Step 5: Recognise revenue when (or as) the entity satisfies a performance

The Group further assesses per contract whether it is acting as a principal or agent by testing based on the following indicators: a. The entity is primarily responsible for fulfilling the performance obligation; b. The entity has latitude in establishing the pricing; and c. The entity bears inventory risk. Where one of the indicators are not met, the entity accounts for the contract with customer on an agent basis. Therefore, the Group recognises the net revenue in the statement of financial performance.

Revenue is recognised at a point in time or over time, depending on the type of promised good or service, that is transferred to the customer. This is determined per contract.

3.14 Cost of sales The cost of sales relates to all direct costs incurred in the conversion of raw water to potable water and the related cost of providing secondary services. The conversion process includes abstraction, purification, pumping and distribution, as it directly relates to the revenue recognised.

Rand Waters recognises cost of sales for each different component of its revenue on primary and secondary activities. Those revenue streams are:

a.

Potable water;

b.

Non‑potable water; and

c.

Recoverable projects.

Any write‑down of inventories to net realisable value and all losses of inventories or reversals of previous write‑downs or losses are recognised in cost of sales in the period the write‑down, loss or reversal occurs, excluding those costs which would be recognised in other operating expenses as they are not directly incurred in bringing the inventories to their present location and condition.

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