RAND WATER ANNUAL REPORT 2023

Consolidated Annual Financial Statements for the year ended 30 June 2023

Summary of Principal Accounting Policies and Significant Judgements

3.17 Finance costs

Finance expenses comprise interest payable on borrowings calculated using the effective interest rate method. The interest expense component is recognised in the statement of profit or loss using the effective interest rate method. The above includes borrowing costs to the extent they are not capitalised to the acquisition, construction or production of a qualifying asset. Effective interest rate method is a method of calculating the amortised cost of a financial asset or a financial liability (or group) and of allocating the interest income or interest expense over the relevant period. 3.18 Income received in advance Income received in advance consists of capital contributions from customers (or other entities) for the construction of items of property, plant and equipment are recognised when it is probable that the contribution will be received, future economic benefits will flow to the entity and that these benefits can be measured reliably. The deferred income relating to these contributions are recognised on the following bases: • Capital contributions received relating to the construction of items of property, plant and equipment are initially recorded as income received in advance. The contributions are subsequently recognised as revenue over the economic useful life of the related asset once the related service has been performed or the asset is brought into use. Recognised as deferred income. • Contributions relating to income are credited to profit or loss when the related expense is incurred. Recognised as contract liability. Income received in advance also include deferred income recognised as a result of items of property, plant and equipment owned by customers or the Executive Authority, but utilised by the Group to generate future economic benefits. The deferred income is recognised in other income over the economic useful life of the related asset. 3.19 Related parties The Group is a 100% controlled entity of the Government of South Africa as represented by the Department of Water and Sanitation. As a Schedule 3B Enterprise in terms of the Public Finance Management Act, the Group recognises only those public entities that are within the same Ministerial control, as related parties. Key management is defined as being individuals with the authority and responsibility for planning, directing and controlling the activities of the entity. The Group considers the key management personnel to be the board members and executives as detailed in the Remuneration Report. Close family members of key management personnel are considered to be those family members who may be expected to influence, or be influenced by key management individuals or other parties related to the entity. Transactions and balances with the related parties as defined by the Group that occurred during the financial period are disclosed as related party transactions or balances. 3.20 Fruitless, wasteful and irregular expenditure Fruitless and wasteful expenditure Fruitless and wasteful expenditure is defined as expenditure which was made in vain and would have been avoided had reasonable care been exercised. Where a transaction, event or condition was undertaken without value or substance and which did not yield any desired results or outcome and careful application, attentiveness and caution was applied to ensure that the probability of a transaction, event or condition not being achieved as planned is being managed to an acceptable level, such transaction, event or condition is recognised as fruitless and wasteful expenditure.

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