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)

3.14 Cost of sales (continued)

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.

Potable water

Potable water cost of sales relates to all direct costs incurred in the conversion of raw water to potable water. These costs include the cost of purchasing water, labour, energy, chemicals, depreciation and amortisation and operating expenses that are directly attributable to the cost of potable water sales. The cost of water losses during the conversion process is included in the cost of water purchases. Where abnormal water losses are incurred during the conversion process, these costs are allocated on a systematic basis and recognised in other operating costs in the period they are incurred.

Non-potable water

Non-potable water cost of sales relates to the costs incurred in the abstraction of water from the Vaal River System by customers, to whom Rand Water has sold part of its water rights.

Recoverable projects

Recoverable projects costs are incurred from different sources of revenue as defined in the PFMA: a) Construction projects; b) Operating and maintenance; and c) Training and consulting. 3.15 Other income

Income received from these sources are classified as other income: a) Rental income – rental received from properties that the Group owns but rents to external and employees for an agreed period. Rental income is incidental in nature and is not derived from investment property. b) Encroachments – relates to fees received from business who operate within the demarcated Rand Water area in and around the Vaal River. c) Sundry income – all other incidental income that the entity realizes on an ad hoc basis. Revenue from rental income and encroachments is recognised on a straight-line basis over the term of the lease, in the statement of financial performance. Sundry income is recognised at a point in time in the statement of financial performance when it meets the recognition criteria in IFRS 15 as defined in the revenue Note 3.13.

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Rand Water | Integrated Annual Report 2025