Rand Water | Integrated Annual Report 2025

Consolidated Annual Financial Statements for the year ended 30 June 2025

SUMMARY OF PRINCIPAL ACCOUNTING POLICIES AND SIGNIFICANT JUDGEMENTS (CONTINUED)

3.4 Leases (continued)

Operating leases

Leases where substantially all of the risks and rewards of ownership are not transferred are classified as operating leases. Payments made under operating leases (net of any incentives received from the lessor) are charged to profit or loss within other expenses on a straight-line basis over the period of the lease. Payments received under operating leases are recognised in profit or loss within other income on a straight-line basis over the period of the lease. 3.5 Borrowing costs Interest on borrowings directly relating to the financing of qualifying capital projects under construction is added to the capitalised cost of those projects during the construction phase, until such time as the assets are substantially ready for their intended use or sale i.e when they are capable of commercial production. Interest expense is calculated using the effective interest method as per IFRS 9. The amount of borrowing costs eligible for capitalisation is determined as follows: • Where the funds used to finance a project form part of general borrowings, the amount capitalised is calculated using a weighted average of rates applicable to relevant general borrowings of the Group during the period. Capitalisation ceases when substantially all the activities necessary to prepare the qualifying asset for its intended use or sale are complete. Where the carrying amount of the qualifying asset exceeds its recoverable amount or net realisable value, the carrying amount is written down. The capitalisation of borrowing costs commences when expenditures for the asset have occurred, borrowing costs have been incurred, and activities that are necessary to prepare the asset for its intended use or sale are in progress. Capitalisation is suspended during extended periods in which active development is interrupted. Qualifying assets are assets that necessarily take a substantial period of time (more than 12 months) to get ready for their intended use or sale, borrowing costs are added to the cost of those assets, until such time as the assets are substantially ready for their intended use or sale. When the construction of a qualifying asset is completed in parts and each part is capable of being used while construction continues on other parts, capitalisation of borrowing costs ceases when substantially all the activities necessary to prepare that part for its intended use or sale are completed. When a temporary delay is a necessary part of the process of getting the qualifying asset ready for its intended use, the Group will not suspend the capitalisation of borrowing costs. However, if the temporary delay is not necessary and expected then capitalisation will be suspended. All other borrowing costs are recognised in profit or loss in the period in which they are incurred. 3.6 Financial instruments The Group recognises a financial asset or financial liability in its statement of financial position when and only when it becomes party to the contractual provisions of the instrument, in terms of IFRS 9. Financial Instruments are classified on initial recognition depending on the purpose for which the instruments were obtained for and will be used.

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Rand Water | Integrated Annual Report 2025