Rand Water | Integrated Annual Report 2025

INTEGRATED ANNUAL REPO

Consolidated Annual Financial Statements for the year ended 30 June 2025

2.4 Impairment of assets (continued) Assets under construction are normally tested for indicators of any existence of a loss in value. All capital projects that have not achieved beneficial use, will be scrutinised for such indicators. If such indicators are present, management will make an estimate of such loss in value taking cognisance of the current state of the asset to its state and required at the completion of construction. An appropriate adjustment is then made for such loss in value based on the assessment made by a qualified professional or subject matter expert, to support the estimation. The calculation of the recoverable amount of a cash generating unit is based on assessments of the higher of the fair value less costs of disposal or value in use. The cash flow projections used in these assessments are subject to the areas of judgement outlined above. The Group further assesses its financial assets and certain non-financial assets for impairment at each reporting date. In determining whether an impairment loss should be recorded in profit or loss, the Group makes judgements as to whether there is observable data indicating a measurable decrease in the estimated future cash flows from such financial asset. 2.5 Assessment of fair value The assessment of fair value is principally used in accounting for impairment testing and the valuation of certain financial assets and liabilities. The fair value of financial instruments traded in active markets (such as available-for-sale securities) is based on quoted market prices at the reporting date. The quoted market price used for financial assets held by the Group is the current bid price. Fair value less cost to sell is determined based on observable market data or discounted cash flow (DCF) models (and other valuation techniques) using assumptions considered to be reasonable and consistent with those that would be applied by a market participant. Where DCF's are used, the resulting fair value measurements are considered to be at level 3 in the fair value hierarchy as defined in IFRS 13 Fair Value Measurement as they depend, to a significant extent, on unobservable valuation inputs. The determination of assumptions used in assessing the fair value of identifiable assets and liabilities is subjective and the use of different valuation assumptions could have a significant impact on financial results. In particular, expected future cash flows, which are used in discounted cash flow models, are inherently uncertain and could materially change over time. They are significantly affected by a number of factors, together with economic factors such as exchange rates, discount rates and estimates of production costs and future capital expenditure. Cash flow projections are based on financial budgets, incorporating key assumptions as detailed below: Discount rates • Cash flow projections used in fair value less costs of disposal impairment models are discounted. To the extent that specific risk factors were not incorporated into the discount rate, adjustments are made to the cash flow projections. • Operating costs, capital expenditure and other operating factors • Operating costs and capital expenditure are based on financial budgets and internal management forecasts. Cost assumptions incorporate management experience and expectations. Trade receivables and payables are non-derivative assets and liabilities with fixed or determinable payments that are not quoted in an active market. Trade receivables and payables are measured at amortised cost using the effective interest rate method less any impairments, these are assumed to approximate their fair values based on the short term nature thereof. 2.6 Post-employment benefit obligation and plan asset The cost of post-employment benefit obligations and the present value of the plan asset are determined using actuarial valuations. An actuarial valuation involves making various assumptions. Due to the complexity of the valuation, the underlying assumptions and its long-term nature, a defined benefit obligation is highly sensitive to changes in these assumptions. All assumptions are reviewed at each reporting date and the carrying amount of the liability and plan asset, have been disclosed in Note 21 to the annual financial statements. Cash flow projections

215

Rand Water | Integrated Annual Report 2025