Rand Water | Integrated Annual Report 2025

INTEGRATED ANNUAL REPO

Consolidated Annual Financial Statements for the year ended 30 June 2025

3.13 Revenue from contracts with customers (continued)

Step 5: Recognise revenue when (or as) the entity satisfies a performance obligation The Group recognises revenue when (or as) it satisfies a performance obligation by transferring a promised good (that is, an asset) to the customer. An asset is transferred when (or as) the customer obtains control of that asset. The customer obtains control of a good if it has the ability to direct the use of and obtain substantially all of the remaining benefits from that good. The Group transfers control of the water over time and the customer simultaneously receives and consumes the benefits provided by the seller's performance as it performs; therefore, the seller would satisfy its performance obligations and would recognise revenue on sales of water over time by measuring the progress toward complete satisfaction of its performance obligation to deliver water. The objective when measuring progress is to depict the Group's performance in transferring control of water to customers. Therefore, revenue has been recognised as control is transferred for the performance obligation (i.e. water upon delivery to the customer's reservoirs or catchment area). 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. Recoverable Projects

235

Rand Water | Integrated Annual Report 2025