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Sandspruit Works Association NPCTrading as ODI Water ServicesAudited Financial statements

for the year ended 30 June 2015

Sandspruit Works Association NPC(Registration number 1999/019160/08)Trading as ODI Water ServicesAudited Financial Statements for the year ended 30 June 2015

General Information

Nature of business and principal activities Water and Sanitation Services

Chief Executive Officer Mr S Baronian (Acting from 22 December 2014 to 31 January 2015)

Mr L Mangcu (Acting from 1 February 2015 to date)

Chief Finance Officer (CFO) P Avenant (Term ended 31 December 2014)

IS Mogototoane CA(SA) (Acting from 1 January 2015 to 31 July 2015)

Directors Adv K-D Garlip (Non Executive)

CV Maboka (Non Executive)

KA Eales (NonExecutive)(Resigned November2014)

LN Bokaba (Non Executive)

TL Moromane (Non Executive)

MJ Taetsane (Executive Director)

ZM Kabini (Non Executive:Chairperson)

Adv BM Malatji (Non Executive)

AZ Ndlala (Non Executive)

Registered office Molefe Makinta Highway

Opposite Morula Sun

Next to NTI

Mabopane

0208

Postal address Private Bag X1124

Ga-Rankuwa

0221

Parent Municipality City of Tshwane Metropolitan Municipality

Bankers Standard Bank of South Africa and ABSA Bank of South Africa

Auditors Auditor General of South Africa

Registered Auditors

Company registration number 1999/019160/08

Preparer The audited financial statements were internally compiled by:

Israel Mogototoane

CA(SA)

1


Index

The reports and statements set out below comprise the audited financial statements presented to the provincial legislature:

Index Page

Director's Responsibilities and Approval 3

Directors' Report 4 - 5

Company Secretary’s Certification 6

Statement of Financial Position 7

Statement of Financial Performance 8

Statement of Changes in Net Assets 9

Cash Flow Statement 10

Statement of Comparison of Budget and Actual Amounts 11 - 13

Accounting Policies 14 - 32

Notes to the Audited Financial Statements 32 - 57

The following supplementary information does not form part of the audited financial statements and is unaudited:

Detailed Income statement 58

Appendix G(3): Budgeted Financial Performance (revenue and expenditure) 59

Appendix G(5): Budgeted Cash Flows 61

Abbreviations

COID Compensation for Occupational Injuries and Diseases

GRAP Generally Recognised Accounting Practice

IPSAS International Public Sector Accounting Standards

ME's Municipal Entities

MFMA Municipal Finance Management Act

UIF Unemployment Insurance Fund

SARS South African revenue Service

VAT Value Added Tax

SOC State Owned Company

WWTW Waste Water Treatment Works

CEO Chief Executive Officer

2


Director's Responsibilities and Approval

The directors are required by the Municipal Finance Management Act (Act 56 of 2003), to maintain adequate accountingrecords and are responsible for the content and integrity of the audited financial statements and related financial informationincluded in this report. It is the responsibility of the directors to ensure that the audited financial statements fairly present thestate of affairs of the entity as at the end of the financial year and the results of its operations and cash flows for the period thenended. The external auditors are engaged to express an independent opinion on the audited financial statements and wasgiven unrestricted access to all financial records and related data.

The audited financial statements have been prepared in accordance with Standards of Generally Recognised AccountingPractice (GRAP) including any interpretations, guidelines and directives issued by the Accounting Standards Board.

The audited financial statements are based upon appropriate accounting policies consistently applied and supported byreasonable and prudent judgements and estimates.

The directors acknowledge that they are ultimately responsible for the system of internal financial control established by theentity and place considerable importance on maintaining a strong control environment. To enable the directors to meet theseresponsibilities, the sets standards for internal control aimed at reducing the risk of error or deficit in a cost effective manner.The standards include the proper delegation of responsibilities within a clearly defined framework, effective accountingprocedures and adequate segregation of duties to ensure an acceptable level of risk. These controls are monitored throughoutthe entity and all employees are required to maintain the highest ethical standards in ensuring the entity’s business isconducted in a manner that in all reasonable circumstances is above reproach. The focus of risk management in the entity ison identifying, assessing, managing and monitoring all known forms of risk across the entity. While operating risk cannot befully eliminated, the entity endeavours to minimise it by ensuring that appropriate infrastructure, controls, systems and ethicalbehaviour are applied and managed within predetermined procedures and constraints.

The directors are of the opinion, based on the information and explanations given by management, that the system of internalcontrol provides reasonable assurance that the financial records may be relied on for the preparation of the audited financialstatements. However, any system of internal financial control can provide only reasonable, and not absolute, assuranceagainst material misstatement or deficit.

The directors have reviewed the entity’s cash flow forecast for the year to 30 June 2016 and, in the light of this review and thecurrent financial position, they are satisfied that the entity has or has access to adequate resources to continue in operationalexistence for the foreseeable future.

The entity is wholly dependent on the City of Tshwane Metropolitan Municipality for continued funding of operations. Theaudited financial statements are prepared on the basis that the entity is a going concern and that the City of TshwaneMetropolitan Municipality has neither the intention nor the need to liquidate or curtail materially the scale of the entity.

Although the are primarily responsible for the financial affairs of the entity, they are supported by the entity's external auditors.

The audited financial statements set out on page, which have been prepared on the going concern basis, were approved by theBoard of Directors on 29 August 2015 and were signed on its behalf by:

DirectorActing Chief Executive Officer

3


Directors' Report

The directors submit their report for the period ended 30 June 2015.

1. Incorporation

The entity was incorporated on 09 January 1999 and obtained its certificate to commence business on the same day.

2. Review of activities

Main business and operations

The entity is engaged to develop, prepare, install and maintain water and sanitation services on behalf of the City of TshwaneMetropolitan Municipality, the parent municipality, to the residents and business in the areas of Garankuwa, Mabopane andWinterveldt.

During the year under review there were no changes in the activities of the business.

3. Going concern and undertaking of support

The audited financial statements have been prepared on the basis of accounting policies applicable to a going concern. Thisbasis presumes that funds will be available to finance future operations and that the realisation of assets and settlement ofliabilities, contingent obligations and commitments will occur in the ordinary course of business.

The ability of the entity to continue as a going concern is dependent on a number of factors. The most significant of these isthat the subordination agreement will be signed by the parent municipality when the need arises and that this letter will remainin force and also that the parent municipality has neither the intention nor the need to liquidate or curtail the scale of the entity.

4. Subsequent events

The directors are not aware of any matter or circumstance arising since the end of the financial year.

5. Directors' personal financial interest

The directors have declared that they have no interest in the contracts of the company.

6. Accounting policies

The annual financial statements have been prepared in accordance with the Statements of Generally Recognised AccountingPractice (GRAP) including any interpretations, guidelines and directives issued by the Accounting Standards Board andadditional disclosure requirements in terms of Municipal Finance Management Act (Act 56 of 2003).

7. Corporate governance

General

The board of directors are committed to business integrity, transparency and professionalism in all its activities. As part of thiscommitment, the board of directors supports the highest standards of corporate governance and the ongoing development ofbest practice.

Board of directors

4


Directors' Report

Composition of the Board

On 1 July 2014, Sandspruit board consisted of six (6) directors of which five were independent. One board member resigned inNovember 2014 which meant that there only 5 directors. In May 2015, the City of Tshwane Metropolitan Municipality appointed3 additional independent non executive directors pushing the number to eight (8) independent non-executive directors at 30June 2015. All seven (7)members of the board were appointed by the City of Tshwane Metropolitan Municipality(CTMM) withthe exception of the Chief Executive Officer who is appointed by the board of directors..

The CTMM has the power at any point in time to remove any directors from the Board and to fill any vacancies created bysuch removal.

Board of directors shall be independent of management and free from any business or other relationship, which couldmaterially interfere with the exercise of their independent judgment as board of directors.

Responsibilities of the Board

The directors have a collective responsibility to provide effective corporate governance that involves a set of relationshipsbetween the CTMM, Sandspruit, and other relevant stakeholder. These responsibilities include:-1.Setting strategic direction and goals for the entity and monitoring managements Implementation of that strategy;2. Appointing such committees for the entity as may be appropriate to assist in the discharge of its responsibilities and todetermine their responsibilities;3. Ensuring that procedures and practices are in place that protects entity's assets and reputation;4. Monitoring financial outcomes and the integrity of reporting, in particular approving annual budgets and longer-termstrategic and business plans;5. Ensuring that effective audit, and compliance systems are in place to protect the entity's assets and to minimise thepossibility of the entity operating beyond legal requirements or beyond acceptable risk parameters;6. Monitoring compliance with regulatory requirements and ethical standards.

Remuneration of the Board

Board of directors not holding management positions in Sandspruit Works Association, shall be remunerated for their serviceson the Board. The CTMMs shall determine the fees payable to members of the Board. The Chairman of the Board shall bepaid additional fees for services rendered on the Board.

Chairperson and the Chief Executive Officer

The Chairperson is an independent non-executive director (as defined by the Code).

The roles of Chairperson and Chief Executive are separate, with responsibilities divided between them, so that no individualhas unfettered powers of discretion.

Remuneration

The remuneration of the Chief Executive Officer, who is the only executive director of the entity, is determined by the Board ofDirectors.

The remuneration of the Board of Directors is determined by the parent municipality.

8. Auditors

Auditor General of South Africa (AGSA) will continue in office for the next financial period.

5


Company Secretary’s Certification

Declaration by the company secretary in respect of Section 88(2)(e) of the Companies Act

In terms of Section 88(2)(e) of the Companies Act 71 of 2008, as amended, I certify that the company has lodged with theCommissioner all such returns as are required of a public company in terms of the Companies Act and that all such returns aretrue, correct and up to date.

Company Secretary (Acting)

6


Statement of Financial Position as at 30 June 2015Figures in Rand Note(s) 2015 Restated 2014

Assets

Current Assets

Cash and cash equivalents 3 22 279 364 13 891 132

Receivables and other receivables from exchange transactions 4 12 669 108 16 324 830

Receivables from non-exchange transactions 5 104 010 730 64 008 676

VAT receivable 6 2 199 762 -

Inventories 7 3 129 233 3 382 914

144 288 197 97 607 552

Non-Current Assets

Property, plant and equipment 8 7 095 625 8 029 916

Intangible assets 9 34 832 76 325

7 130 457 8 106 241

Total Assets 151 418 654 105 713 793

Liabilities

Current Liabilities

Trade and Other Payables from exchange transactions 10 139 883 393 94 195 696

Unspent Conditional Grant 11 278 854 278 854

Consumer deposits 12 3 756 137 3 725 662

Operating lease liability 13 95 513 286 147

VAT payable 15 - 290 318

Payroll Provisions 14 5 132 422 6 266 223

149 146 319 105 042 900

Non-Current Liabilities

Operating lease liability 13 550 920 25 503

Total Liabilities 149 697 239 105 068 403

Net Assets 1 721 415 645 390

Accumulated surplus 1 721 415 645 390

7


Statement of Financial PerformanceFigures in Rand Note(s) 2015 Restated 2014

Revenue 17 426 168 585 361 463 625

Cost of sales 19 (184 463 052) (149 021 194)

Gross surplus 241 705 533 212 442 431

Other income 6 646 305 4 037 935

Operating expenses (283 899 963) (249 292 566)

Operating deficit 21 (35 548 125) (32 812 200)

Interest Earned 24 36 624 150 27 891 443

Surplus (deficit) for the year 1 076 025 (4 920 757)

8


Statement of Changes in Net Assets

Figures in RandAccumulated

surplusTotal netassets

Balance at 01 July 2013 5 566 147 5 566 147Changes in net assetsSurplus for the year (4 920 757) (4 920 757)

Total changes (4 920 757) (4 920 757)

Balance at 01 July 2014 645 390 645 390Changes in net assetsSurplus for the year 1 076 025 1 076 025

Total changes 1 076 025 1 076 025

Balance at 30 June 2015 1 721 415 1 721 415

Note(s)

9


Cash Flow StatementFigures in Rand Note(s) 2015 Restated 2014

Cash flows from operating activities

Receipts

Sale of goods and services 95 723 148 86 437 365

Grants 194 338 546 205 007 856

Other receipts 58 685 76 510

Interest Received 14 623 765 10 720 890

304 744 144 302 242 621

Payments

Employee costs (85 818 819) (83 240 796)

Suppliers (209 760 853) (216 879 734)

(295 579 672) (300 120 530)

Net cash flows from operating activities 26 9 164 472 2 122 091

Cash flows from investing activities

Purchase of property, plant and equipment 8 (776 240) (324 983)

Purchase of other intangible assets 9 - (29 409)

Net cash flows from investing activities (776 240) (354 392)

Net increase/(decrease) in cash and cash equivalents 8 388 232 1 767 699

Cash and cash equivalents at the beginning of the year 13 891 132 12 123 433

Cash and cash equivalents at the end of the year 3 22 279 364 13 891 132

10


Statement of Comparison of Budget and Actual AmountsBudget on Cash Basis

Figures in Rand

Approvedbudget

Adjustments Final Budget Actual amountson comparable

basis

Differencebetween finalbudget and

actual

Reference

Statement of Financial Performance

Revenue

Revenue from exchangetransactions

Sanitation Revenue 50 590 037 - 50 590 037 52 028 695 1 438 658

Water Revenue 186 526 568 - 186 526 568 193 944 631 7 418 063 Note 44

Interest Earned - External - 202 682 202 682 830 813 628 131

Interest Earned 29 972 360 (202 682) 29 769 678 35 793 337 6 023 659 Note 44

Total revenue from exchangetransactions

267 088 965 - 267 088 965 282 597 476 15 508 511

Revenue from non-exchangetransactions

Taxation revenue

Service Charge: Other 48 833 280 - 48 833 280 41 014 889 (7 818 391) Note 44

Government grants & subsidies 172 940 098 (172 940 098) - - -

Transfer revenue

Transfers recognised -Operational

- 172 940 098 172 940 098 202 063 300 29 123 202 Note 44

Total revenue from non-exchange transactions

221 773 378 - 221 773 378 243 078 189 21 304 811

Total revenue 488 862 343 - 488 862 343 525 675 665 36 813 322

Expenditure

Personnel (94 193 202) - (94 193 202) (84 933 166) 9 260 036 Note 44

Remuneration of Directors (678 216) - (678 216) (773 845) (95 629)

Depreciation and amortisation (2 459 382) - (2 459 382) (1 732 029) 727 353

Debt impairment (85 084 036) - (85 084 036) (128 180 077) (43 096 041) Note 44

Collection costs (5 842 587) - (5 842 587) (4 436 496) 1 406 091

Bulk purchases (145 909 056) - (145 909 056) (167 838 325) (21 929 269) Note 44

General Expenses (154 695 864) - (154 695 864) (136 685 710) 18 010 154 Note 44

Total expenditure (488 862 343) - (488 862 343) (524 579 648) (35 717 305)

Operating surplus - - - 1 096 017 1 096 017

Loss on disposal of assets andliabilities

- - - (19 993) (19 993)

Surplus before taxation - - - 1 076 024 1 076 024

Actual Amount on ComparableBasis as Presented in theBudget and ActualComparative Statement

- - - 1 076 024 1 076 024

11



Figures in Rand

Approvedbudget


basis


actual

Reference

Statement of Financial Position

Assets

Current Assets

Inventories 3 150 000 - 3 150 000 3 483 478 333 478

Receivables and otherreceivables from exchangetransactions

14 432 186 - 14 432 186 12 486 401 (1 945 785) Note 44

Receivables from non-exchangetransactions

17 962 886 - 17 962 886 121 116 385 103 153 499 Note 44

Cash and cash equivalents 14 390 802 - 14 390 802 22 279 364 7 888 562 Note 44

49 935 874 - 49 935 874 159 365 628 109 429 754

Non-Current Assets

Property, plant and equipment 8 993 691 - 8 993 691 7 130 457 (1 863 234)

Total Assets 58 929 565 - 58 929 565 166 496 085 107 566 520

Liabilities

Current Liabilities

Trade and Other Payables fromexchange transactions

57 916 565 - 57 916 565 161 030 661 103 114 096 Note 44

Consumer deposits 3 500 000 - 3 500 000 3 744 011 244 011

61 416 565 - 61 416 565 164 774 672 103 358 107

Total Liabilities 61 416 565 - 61 416 565 164 774 672 103 358 107

Net Assets (2 487 000) - (2 487 000) 1 721 413 4 208 413

Net Assets

Net Assets Attributable toOwners of Controlling Entity

Reserves

Accumulated surplus (2 487 000) - (2 487 000) 1 721 413 4 208 413 Note 44

12



Figures in Rand

Approvedbudget


basis


actual

Reference

Cash Flow Statement

Cash flows from operating activities

Receipts

Sale of goods and services 409 358 944 - 409 358 944 290 120 377 (119 238 567) Note 44

Interest income 29 972 360 - 29 972 360 14 623 765 (15 348 595) Note 44

439 331 304 - 439 331 304 304 744 142 (134 587 162)

Payments

Employee costs & Suppliers (444 491 322) - (444 491 322) (295 579 672) 148 911 650 Note 44

Net cash flows from operatingactivities

(5 160 018) - (5 160 018) 9 164 470 14 324 488

Cash flows from investing activities

Purchase of property, plant andequipment

(2 000 000) - (2 000 000) (776 239) 1 223 761 Note 44

Cash flows from financing activities

Increase in Consumer Deposits 200 000 - 200 000 - (200 000)

Net increase/(decrease) in cashand cash equivalents

(6 960 018) - (6 960 018) 8 388 231 15 348 249 Note 44

Cash and cash equivalents atthe beginning of the year

21 350 820 - 21 350 820 13 891 132 (7 459 688) Note 44

Cash and cash equivalents atthe end of the year

14 390 802 - 14 390 802 22 279 363 7 888 561

13


Accounting Policies

1. Presentation of Audited Financial Statements

The audited financial statements have been prepared in accordance with the Standards of Generally Recognised AccountingPractice (GRAP), issued by the Accounting Standards Board in accordance with Section 122(3) of the Municipal FinanceManagement Act (Act 56 of 2003).

In terms of GRAP, in the absence of a standard or pronouncement comprising the GRAP financial reporting frameworks thatspecifically applies to a transaction, other event or condition, management should apply judgement and may consider thefollowing pronouncements, in descending order, in developing an accounting policy for such a transaction, event or condition.• Statements of GRAP that have been issued, but are not yet effective• International Public Sector Accounting Standards (IPSAS)• International Financial Reporting Standards (IFRS)

These audited financial statements have been prepared on an accrual basis of accounting and are in accordance with historicalcost convention as the basis of measurement, unless specified otherwise. They are presented in South African Rand.

A summary of the significant accounting policies, which have been consistently applied in the preparation of these auditedfinancial statements, are disclosed below.

These accounting policies are consistent with the previous period.

1.1 Going concern assumption

These audited financial statements have been prepared based on the expectation that the entity will continue to operate asa going concern for at least the next 12 months.

1.2 Significant judgements and sources of estimation uncertainty

In preparing the audited financial statements, management is required to make estimates and assumptions that affect theamounts represented in the audited financial statements and related disclosures. Use of available information and theapplication of judgement is inherent in the formation of estimates. Actual results in the future could differ from these estimateswhich may be material to the audited financial statements. Significant judgements include:

Allowance for slow moving, damaged and obsolete stock

An allowance for stock to write stock down to the lower of cost or net realisable value. Management have made estimates ofthe selling price and direct cost to sell on certain inventory items. The write down is included in the operation surplus noteunder general expenses.

Impairment testing

The entity reviews and tests the carrying value of assets when events or changes in circumstances suggest that the carryingamount may not be recoverable. Assets are grouped at the lowest level for which identifiable cash flows are largelyindependent of cash flows of other assets and liabilities. If there are indications that impairment may have occurred, estimatesare prepared of expected future cash flows for each group of assets.

Provisions

Provisions were raised and management determined an estimate based on the information available. Additional disclosure ofthese estimates of provisions are included in note 14 - Provisions.

Useful lives of waste and water network and other assets

The entity's management determines the estimated useful lives and related depreciation charges for the waste water and waternetworks and all other assets. This estimate is based on industry norm. Management will increase the depreciation chargewhere useful lives are less than previously estimated useful lives.

14


Accounting Policies

1.2 Significant judgements and sources of estimation uncertainty (continued)

Allowance for doubtful debts

On debtors an impairment loss is recognised in surplus and deficit when there is objective evidence that it is impaired. Theimpairment is measured as the difference between the debtors carrying amount and the present value of estimated future cashflows discounted at the effective interest rate, computed at initial recognition.

1.3 Property, plant and equipment

Property, plant and equipment are tangible non-current assets (including infrastructure assets) that are held for use in theproduction or supply of goods or services, rental to others, or for administrative purposes, and are expected to be used duringmore than one reporting period.

The cost of an item of property, plant and equipment is recognised as an asset when: it is probable that future economic benefits or service potential associated with the item will flow to the entity; and the cost or fair value of the item can be measured reliably.

Property, plant and equipment is initially measured at cost.

The cost of an item of property, plant and equipment is the purchase price and other costs attributable to bring the asset to thelocation and condition necessary for it to be capable of operating in the manner intended by management. Trade discounts andrebates are deducted in arriving at the cost.

Where an asset is acquired through a non-exchange transaction, its cost is its fair value as at date of acquisition.

Where an item of property, plant and equipment is acquired in exchange for a non-monetary asset or assets, or a combinationof assets and non-monetary assets, the asset acquired is initially measured at fair value (the cost). If the acquired item's fairvalue was not determinable, it's deemed cost is the carrying amount of the asset(s) given up.

When significant components of an item of property, plant and equipment have different useful lives, they are accounted foras separate items (major components) of property, plant and equipment.

Costs include costs incurred initially to acquire or construct an item of property, plant and equipment and costs incurredsubsequently to add to, replace part of, or service it. If a replacement cost is recognised in the carrying amount of an item ofproperty, plant and equipment, the carrying amount of the replaced part is derecognised.

The initial estimate of the costs of dismantling and removing the item and restoring the site on which it is located is alsoincluded in the cost of property, plant and equipment, where the entity is obligated to incur such expenditure, and where theobligation arises as a result of acquiring the asset or using it for purposes other than the production of inventories.

Recognition of costs in the carrying amount of an item of property, plant and equipment ceases when the item is in the locationand condition necessary for it to be capable of operating in the manner intended by management.

Major spare parts and stand by equipment which are expected to be used for more than one period are included in property,plant and equipment. In addition, spare parts and stand by equipment which can only be used in connection with an item ofproperty, plant and equipment are accounted for as property, plant and equipment.

Major inspection costs which are a condition of continuing use of an item of property, plant and equipment and which meet therecognition criteria above are included as a replacement in the cost of the item of property, plant and equipment. Any remaininginspection costs from the previous inspection are derecognised.

Property, plant and equipment is carried at cost less accumulated depreciation and any impairment losses.

Property, plant and equipment are depreciated on the straight line basis over their expected useful lives to their estimatedresidual value.

The useful lives of items of property, plant and equipment have been assessed as follows:

Item Average useful lifeBuildings 30 - 50 Years

15


Accounting Policies

1.3 Property, plant and equipment (continued)Plant and machinery 10 YearsFurniture and fixtures 5 YearsMotor vehicles 5 YearsIT equipment 3 Years

The residual value, the useful life and depreciation method of each asset are reviewed at least at of each reporting date. If theexpectations differ from previous estimates, the change is accounted for as a change in accounting estimate.

Reviewing the useful life of an asset on an annual basis does not require the entity to amend the previous estimate unlessexpectations differ from the previous estimate.

Each part of an item of property, plant and equipment with a cost that is significant in relation to the total cost of the item isdepreciated separately.

The depreciation charge for each period is recognised in surplus or deficit unless it is included in the carrying amount ofanother asset.

Items of property, plant and equipment are derecognised when the asset is disposed of or when there are no further economicbenefits or service potential expected from the use or disposal of the asset.

The gain or loss arising from the derecognition of an item of property, plant and equipment is included in surplus or deficit whenthe item is derecognised. The gain or loss arising from the derecognition of an item of property, plant and equipment isdetermined as the difference between the net disposal proceeds, if any, and the carrying amount of the item.

Subsequent costs are included in the carrying amount or recognised as a separate asset, as appropriate, only when it isprobable that future economic benefits or service potential over the total life of the asset in excess of the most recentlyassessed standard of performance of the existing asset will flow to the entity. All other repairs and maintenance are chargedto surplus or deficit for the year in which they are incurred.

The entity tests for impairment where there is an indication that an asset might be impaired. An assessment of whether thereis an indication of possible impairment is done at each reporting date. Where the carrying amount of an item of property, plantand equipment is greater than the estimated recoverable amount (or recoverable service amount) it is written downimmediately to its recoverable amount (or recoverable service amount) and impairment loss is charged to surplus or deficit forthe year.

1.4 Intangible assets

An asset is identifiable if it either: is separable, i.e. is capable of being separated or divided from an entity and sold, transferred, licensed, rented or

exchanged, either individually or together with a related contract, identifiable assets or liability, regardless ofwhether the entity intends to do so; or

arises from binding arrangements (including rights from contracts), regardless of whether those rights aretransferable or separable from the entity or from other rights and obligations.

A binding arrangement describes an arrangement that confers similar rights and obligations on the parties to it as if it were inthe form of a contract.

An intangible asset is recognised when: it is probable that the expected future economic benefits or service potential that are attributable to the asset will

flow to the entity; and the cost or fair value of the asset can be measured reliably.

The entity assesses the probability of expected future economic benefits or service potential using reasonable and supportableassumptions that represent management’s best estimate of the set of economic conditions that will exist over the useful life ofthe asset.

Where an intangible asset is acquired through a non-exchange transaction, its initial cost at the date of acquisition is measuredat its fair value as at that date.

16


Accounting Policies

1.4 Intangible assets (continued)

Expenditure on research (or on the research phase of an internal project) is recognised as an expense when it is incurred.

Initial computer software costs are recorded as intangible assets at cost. Computer software licensed to the computer onwhich it is installed and cannot be resold. Therefore, it is deemed that computer software has no residual value. Yearlymaintenance and update fees are payable for software used. These fees are accounted for as expenses as and when itbecomes payable. In light of the annual fees payable, initial software costs are amortised on a straight line basis over 3 years.

Computer software is capitalised to the computer equipment where it forms an integral part of the equipment. Where thesoftware does not form an integral part of the equipment, it is separately recognised as an intangible asset.

Intangible assets are carried at cost less any accumulated amortisation and any impairment losses.

An intangible asset is regarded as having an indefinite useful life when, based on all relevant factors, there is no foreseeablelimit to the period over which the asset is expected to generate net cash inflows or service potential. Amortisation is notprovided for these intangible assets, but they are tested for impairment annually and whenever there is an indication that theasset may be impaired. For all other intangible assets amortisation is provided on a straight line basis over their useful life.

The amortisation period and the amortisation method for intangible assets are reviewed at each reporting date.

Reassessing the useful life of an intangible asset with a finite useful life after it was classified as indefinite is an indicator thatthe asset may be impaired. As a result the asset is tested for impairment and the remaining carrying amount is amortised overits useful life.

Internally generated brands, mastheads, publishing titles, customer lists and items similar in substance are not recognised asintangible assets.

Internally generated goodwill is not recognised as an intangible asset.

Amortisation is provided to write down the intangible assets, on a straight line basis, to their residual values as follows:

Item Useful lifeComputer software 3 years

Intangible assets are derecognised: on disposal; or when no future economic benefits or service potential are expected from its use or disposal.

The gain or loss is the difference between the net disposal proceeds, if any, and the carrying amount. It is recognised insurplus or deficit when the asset is derecognised.

1.5 Financial instruments

A financial instrument is any contract that gives rise to a financial asset of one entity and a financial liability or a residualinterest of another entity.

Credit risk is the risk that one party to a financial instrument will cause a financial loss for the other party by failing to dischargean obligation.

A financial asset is: cash; a residual interest of another entity; or a contractual right to:

- receive cash or another financial asset from another entity; or- exchange financial assets or financial liabilities with another entity under conditions that are potentiallyfavourable to the entity.

A financial liability is any liability that is a contractual obligation to: deliver cash or another financial asset to another entity; or exchange financial assets or financial liabilities under conditions that are potentially unfavourable to the entity.

17


Accounting Policies

1.5 Financial instruments (continued)

A financial asset is past due when a counterparty has failed to make a payment when contractually due.

Financial instruments at amortised cost are non-derivative financial assets or non-derivative financial liabilities that have fixedor determinable payments, excluding those instruments that:

the entity designates at fair value at initial recognition; or are held for trading.

Financial instruments at cost are investments in residual interests that do not have a quoted market price in an active market,and whose fair value cannot be reliably measured.

Classification

The entity has the following types of financial assets (classes and category) as reflected on the face of the statement offinancial position or in the notes thereto:

`

Class CategoryCash and Cash equivalents Financial asset measured at amortised costReceivables from exchange transactions Financial asset measured at amortised costReceivables from non exchange transactions Financial asset measured at amortised cost

The entity has the following types of financial liabilities (classes and category) as reflected on the face of the statement offinancial position or in the notes thereto:

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Class CategoryTrade Payables from exchange transactions Financial liability measured at amortised costConsumer deposits Financial liability measured at amortised costBonus Accrual - 13th Cheque Financial liability measured at amortised cost

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Class Category

Initial recognition

The entity recognises a financial asset or a financial liability in its statement of financial position when the entity becomes aparty to the contractual provisions of the instrument.

The entity recognises financial assets using trade date accounting.

Initial measurement of financial assets and financial liabilities

The entity measures a financial asset and financial liability initially at its fair value plus transaction costs that are directlyattributable to the acquisition or issue of the financial asset or financial liability.

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Accounting Policies


Subsequent measurement of financial assets and financial liabilities

The entity measures all financial assets and financial liabilities after initial recognition using the following categories: Financial instruments at amortised cost.

All financial assets measured at amortised cost, or cost, are subject to an impairment review.

Gains and losses

For financial assets and financial liabilities measured at amortised cost or cost, a gain or loss is recognised in surplus or deficitwhen the financial asset or financial liability is derecognised or impaired, or through the amortisation process.

Impairment and uncollectibility of financial assets

The entity assess at the end of each reporting period whether there is any objective evidence that a financial asset or group offinancial assets is impaired.

Financial assets measured at amortised cost:

If there is objective evidence that an impairment loss on financial assets measured at amortised cost has been incurred, theamount of the loss is measured as the difference between the asset’s carrying amount and the present value of estimatedfuture cash flows (excluding future credit losses that have not been incurred) discounted at the financial asset’s originaleffective interest rate. The carrying amount of the asset is reduced directly OR through the use of an allowance account. Theamount of the loss is recognised in surplus or deficit.

If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to anevent occurring after the impairment was recognised, the previously recognised impairment loss is reversed directly OR byadjusting an allowance account. The reversal does not result in a carrying amount of the financial asset that exceeds what theamortised cost would have been had the impairment not been recognised at the date the impairment is reversed. The amountof the reversal is recognised in surplus or deficit.

Financial assets measured at cost:

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Accounting Policies


Derecognition

Financial assets

The entity derecognises financial assets using trade date accounting.

The entity derecognises a financial asset only when: the contractual rights to the cash flows from the financial asset expire, are settled or waived; the entity transfers to another party substantially all of the risks and rewards of ownership of the financial asset; or the entity, despite having retained some significant risks and rewards of ownership of the financial asset, has

transferred control of the asset to another party and the other party has the practical ability to sell the asset in itsentirety to an unrelated third party, and is able to exercise that ability unilaterally and without needing to imposeadditional restrictions on the transfer. In this case, the entity :- derecognise the asset; and- recognise separately any rights and obligations created or retained in the transfer.

The carrying amounts of the transferred asset are allocated between the rights or obligations retained and those transferred onthe basis of their relative fair values at the transfer date. Newly created rights and obligations are measured at their fair valuesat that date. Any difference between the consideration received and the amounts recognised and derecognised is recognisedin surplus or deficit in the period of the transfer.

If the entity transfers a financial asset in a transfer that qualifies for derecognition in its entirety and retains the right to servicethe financial asset for a fee, it recognise either a servicing asset or a servicing liability for that servicing contract. If the fee to bereceived is not expected to compensate the entity adequately for performing the servicing, a servicing liability for the servicingobligation is recognised at its fair value. If the fee to be received is expected to be more than adequate compensation for theservicing, a servicing asset is recognised for the servicing right at an amount determined on the basis of an allocation of thecarrying amount of the larger financial asset.

If, as a result of a transfer, a financial asset is derecognised in its entirety but the transfer results in the entity obtaining a newfinancial asset or assuming a new financial liability, or a servicing liability, the entity recognise the new financial asset, financialliability or servicing liability at fair value.

On derecognition of a financial asset in its entirety, the difference between the carrying amount and the sum of theconsideration received is recognised in surplus or deficit.

If the transferred asset is part of a larger financial asset and the part transferred qualifies for derecognition in its entirety, theprevious carrying amount of the larger financial asset is allocated between the part that continues to be recognised and the partthat is derecognised, based on the relative fair values of those parts, on the date of the transfer. For this purpose, a retainedservicing asset is treated as a part that continues to be recognised. The difference between the carrying amount allocated tothe part derecognised and the sum of the consideration received for the part derecognised is recognised in surplus or deficit.

If a transfer does not result in derecognition because the entity has retained substantially all the risks and rewards of ownershipof the transferred asset, the entity continue to recognise the transferred asset in its entirety and recognise a financial liability forthe consideration received. In subsequent periods, the entity recognises any revenue on the transferred asset and any expenseincurred on the financial liability. Neither the asset, and the associated liability nor the revenue, and the associated expensesare offset.

Financial liabilities

The entity removes a financial liability (or a part of a financial liability) from its statement of financial position when it isextinguished — i.e. when the obligation specified in the contract is discharged, cancelled, expires or waived.

An exchange between an existing borrower and lender of debt instruments with substantially different terms is accounted for ashaving extinguished the original financial liability and a new financial liability is recognised. Similarly, a substantial modificationof the terms of an existing financial liability or a part of it is accounted for as having extinguished the original financial liabilityand having recognised a new financial liability.

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Accounting Policies


The difference between the carrying amount of a financial liability (or part of a financial liability) extinguished or transferred toanother party and the consideration paid, including any non-cash assets transferred or liabilities assumed, is recognised insurplus or deficit. Any liabilities that are waived, forgiven or assumed by another entity by way of a non-exchange transactionare accounted for in accordance with the Standard of GRAP on Revenue from Non-exchange Transactions (Taxes andTransfers).

Presentation

Interest relating to a financial instrument or a component that is a financial liability is recognised as revenue or expense insurplus or deficit.

Losses and gains relating to a financial instrument or a component that is a financial liability is recognised as revenue orexpense in surplus or deficit.

A financial asset and a financial liability are only offset and the net amount presented in the statement of financial positionwhen the entity currently has a legally enforceable right to set off the recognised amounts and intends either to settle on a netbasis, or to realise the asset and settle the liability simultaneously.

In accounting for a transfer of a financial asset that does not qualify for derecognition, the entity does not offset the transferredasset and the associated liability.

1.6 Tax

Tax expenses

The entity is exempt from tax in terms of section 10(1)cA(ii) of the Income Tax Act, 1962 (Act 58 of 1962).

1.7 Leases

A lease is classified as a finance lease if it transfers substantially all the risks and rewards incidental to ownership. A lease isclassified as an operating lease if it does not transfer substantially all the risks and rewards incidental to ownership.

When a lease includes both land and buildings elements, the entity assesses the classification of each element separately.

Operating leases - lessee

Operating lease payments are recognised as an expense on a straight-line basis over the lease term. The difference betweenthe amounts recognised as an expense and the contractual payments are recognised as an operating lease asset or liability.This lease liability or asset is not discounted. (Refer to note 27).

1.8 Inventories

Inventories are initially measured at cost except where inventories are acquired through a non-exchange transaction, then theircosts are their fair value as at the date of acquisition.

Subsequently inventories are measured at the lower of cost and net realisable value.

Raw materials and components are valued at the lower of cost or net realisable value. In general, the basis of determiningcost is the weighted average method.

Water stock is measured at the lower of cost or net realisable value on the first-in-first-out basis.

Redundant and slow moving inventories are identified and written down from cost to net realisable value with regard to theirestimated economic or realisable value.

Net realisable value is the estimated selling price in the ordinary course of operations less the estimated costs of completionand the estimated costs necessary to make the sale, exchange or distribution.

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Accounting Policies

1.8 Inventories (continued)

The cost of inventories comprises of all costs of purchase, costs of conversion and other costs incurred in bringing theinventories to their present location and condition.

The cost of inventories of items that are not ordinarily interchangeable and goods or services produced and segregated forspecific projects is assigned using specific identification of the individual costs.

When inventories are sold, the carrying amounts of those inventories are recognised as an expense in the period in which therelated revenue is recognised. If there is no related revenue, the expenses are recognised when the goods are distributed, orrelated services are rendered. The amount of any write-down of inventories to net realisable value or current replacement costand all losses of inventories are recognised as an expense in the period the write-down or loss occurs. The amount of anyreversal of any write-down of inventories, arising from an increase in net realisable value or current replacement cost, arerecognised as a reduction in the amount of inventories recognised as an expense in the period in which the reversal occurs.

1.9 Impairment of cash-generating assets

Cash-generating assets are those assets held by the entity with the primary objective of generating a commercial return. Whenan asset is deployed in a manner consistent with that adopted by a profit-orientated entity, it generates a commercial return.

Impairment is a loss in the future economic benefits or service potential of an asset, over and above the systematic recognitionof the loss of the asset’s future economic benefits or service potential through depreciation (amortisation).

Carrying amount is the amount at which an asset is recognised in the statement of financial position after deducting anyaccumulated depreciation and accumulated impairment losses thereon.

A cash-generating unit is the smallest identifiable group of assets held with the primary objective of generating a commercialreturn that generates cash inflows from continuing use that are largely independent of the cash inflows from other assets orgroups of assets.

Costs of disposal are incremental costs directly attributable to the disposal of an asset, excluding finance costs and income taxexpense.

Depreciation (Amortisation) is the systematic allocation of the depreciable amount of an asset over its useful life.

Fair value less costs to sell is the amount obtainable from the sale of an asset in an arm’s length transaction betweenknowledgeable, willing parties, less the costs of disposal.

Recoverable amount of an asset or a cash-generating unit is the higher its fair value less costs to sell and its value in use.

Useful life is either:(a) the period of time over which an asset is expected to be used by the entity; or(b) the number of production or similar units expected to be obtained from the asset by the entity.

Identification

When the carrying amount of a cash-generating asset exceeds its recoverable amount, it is impaired.

The entity assesses at each reporting date whether there is any indication that a cash-generating asset may be impaired. If anysuch indication exists, the entity estimates the recoverable amount of the asset.

Irrespective of whether there is any indication of impairment, the entity also test a cash-generating intangible asset with anindefinite useful life or a cash-generating intangible asset not yet available for use for impairment annually by comparing itscarrying amount with its recoverable amount. This impairment test is performed at the same time every year. If an intangibleasset was initially recognised during the current reporting period, that intangible asset was tested for impairment before the endof the current reporting period.

Value in use

Value in use of a cash-generating asset is the present value of the estimated future cash flows expected to be derived from thecontinuing use of an asset and from its disposal at the end of its useful life.

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Accounting Policies

1.10 Impairment of non-cash-generating assets

Cash-generating assets are those assets held by the entity with the primary objective of generating a commercial return. Whenan asset is deployed in a manner consistent with that adopted by a profit-orientated entity, it generates a commercial return.

Non-cash-generating assets are assets other than cash-generating assets.

Impairment is a loss in the future economic benefits or service potential of an asset, over and above the systematic recognitionof the loss of the asset’s future economic benefits or service potential through depreciation (amortisation).

Carrying amount is the amount at which an asset is recognised in the statement of financial position after deducting anyaccumulated depreciation and accumulated impairment losses thereon.

A cash-generating unit is the smallest identifiable group of assets held with the primary objective of generating a commercialreturn that generates cash inflows from continuing use that are largely independent of the cash inflows from other assets orgroups of assets.

Costs of disposal are incremental costs directly attributable to the disposal of an asset, excluding finance costs and income taxexpense.

Depreciation (Amortisation) is the systematic allocation of the depreciable amount of an asset over its useful life.

Fair value less costs to sell is the amount obtainable from the sale of an asset in an arm’s length transaction betweenknowledgeable, willing parties, less the costs of disposal.

Recoverable service amount is the higher of a non-cash-generating asset’s fair value less costs to sell and its value in use.

Useful life is either:(a) the period of time over which an asset is expected to be used by the entity; or(b) the number of production or similar units expected to be obtained from the asset by the entity.

Identification

When the carrying amount of a non-cash-generating asset exceeds its recoverable service amount, it is impaired.

The entity assesses at each reporting date whether there is any indication that a non-cash-generating asset may be impaired.If any such indication exists, the entity estimates the recoverable service amount of the asset.

Irrespective of whether there is any indication of impairment, the entity also test a non-cash-generating intangible asset with anindefinite useful life or a non-cash-generating intangible asset not yet available for use for impairment annually by comparing itscarrying amount with its recoverable service amount. This impairment test is performed at the same time every year. If anintangible asset was initially recognised during the current reporting period, that intangible asset was tested for impairmentbefore the end of the current reporting period.

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Accounting Policies

1.10 Impairment of non-cash-generating assets (continued)

Value in use

Value in use of non-cash-generating assets is the present value of the non-cash-generating assets remaining service potential.

The present value of the remaining service potential of a non-cash-generating assets is determined using the followingapproach:

Depreciated replacement cost approach

The present value of the remaining service potential of a non-cash-generating asset is determined as the depreciatedreplacement cost of the asset. The replacement cost of an asset is the cost to replace the asset’s gross service potential. Thiscost is depreciated to reflect the asset in its used condition. An asset may be replaced either through reproduction (replication)of the existing asset or through replacement of its gross service potential. The depreciated replacement cost is measured asthe reproduction or replacement cost of the asset, whichever is lower, less accumulated depreciation calculated on the basis ofsuch cost, to reflect the already consumed or expired service potential of the asset.

The replacement cost and reproduction cost of an asset is determined on an “optimised” basis. The rationale is that the entitywould not replace or reproduce the asset with a like asset if the asset to be replaced or reproduced is an overdesigned orovercapacity asset. Overdesigned assets contain features which are unnecessary for the goods or services the asset provides.Overcapacity assets are assets that have a greater capacity than is necessary to meet the demand for goods or services theasset provides. The determination of the replacement cost or reproduction cost of an asset on an optimised basis thus reflectsthe service potential required of the asset.

Recognition and measurement

If the recoverable service amount of a non-cash-generating asset is less than its carrying amount, the carrying amount of theasset is reduced to its recoverable service amount. This reduction is an impairment loss.

An impairment loss is recognised immediately in surplus or deficit.

Any impairment loss of a revalued non-cash-generating asset is treated as a revaluation decrease.

When the amount estimated for an impairment loss is greater than the carrying amount of the non-cash-generating asset towhich it relates, the entity recognises a liability only to the extent that is a requirement in the Standards of GRAP.

After the recognition of an impairment loss, the depreciation (amortisation) charge for the non-cash-generating asset isadjusted in future periods to allocate the non-cash-generating asset’s revised carrying amount, less its residual value (if any),on a systematic basis over its remaining useful life.

Reversal of an impairment loss

The entity assess at each reporting date whether there is any indication that an impairment loss recognised in prior periods fora non-cash-generating asset may no longer exist or may have decreased. If any such indication exists, the entity estimates therecoverable service amount of that asset.

An impairment loss recognised in prior periods for a non-cash-generating asset is reversed if there has been a change in theestimates used to determine the asset’s recoverable service amount since the last impairment loss was recognised. Thecarrying amount of the asset is increased to its recoverable service amount. The increase is a reversal of an impairment loss.The increased carrying amount of an asset attributable to a reversal of an impairment loss does not exceed the carryingamount that would have been determined (net of depreciation or amortisation) had no impairment loss been recognised for theasset in prior periods.

A reversal of an impairment loss for a non-cash-generating asset is recognised immediately in surplus or deficit.

Any reversal of an impairment loss of a revalued non-cash-generating asset is treated as a revaluation increase.

After a reversal of an impairment loss is recognised, the depreciation (amortisation) charge for the non-cash-generating assetis adjusted in future periods to allocate the non-cash-generating asset’s revised carrying amount, less its residual value (if any),on a systematic basis over its remaining useful life.

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Accounting Policies

1.10 Impairment of non-cash-generating assets (continued)

Redesignation

The redesignation of assets from a cash-generating asset to a non-cash-generating asset or from a non-cash-generating assetto a cash-generating asset only occur when there is clear evidence that such a redesignation is appropriate.

1.11 Employee benefits

Employee benefits are all forms of consideration given by an entity in exchange for service rendered by employees.

Termination benefits are employee benefits payable as a result of either: an entity’s decision to terminate an employee’s employment before the normal retirement date; or an employee’s decision to accept voluntary redundancy in exchange for those benefits.

Vested employee benefits are employee benefits that are not conditional on future employment.

A constructive obligation is an obligation that derives from an entity’s actions where by an established pattern of past practice,published policies or a sufficiently specific current statement, the entity has indicated to other parties that it will accept certainresponsibilities and as a result, the entity has created a valid expectation on the part of those other parties that it will dischargethose responsibilities.

Short-term employee benefits

Short-term employee benefits are employee benefits (other than termination benefits) that are due to be settled within twelvemonths after the end of the period in which the employees render the related service.

Short-term employee benefits include items such as: wages, salaries and social security contributions; short-term compensated absences (such as paid annual leave and paid sick leave) where the compensation for the

absences is due to be settled within twelve months after the end of the reporting period in which the employeesrender the related employee service;

bonus, incentive and performance related payments payable within twelve months after the end of the reportingperiod in which the employees render the related service; and

non-monetary benefits (for example, medical care, and free or subsidised goods or services such as housing, carsand cellphones) for current employees.

When an employee has rendered service to the entity during a reporting period, the entity recognise the undiscounted amountof short-term employee benefits expected to be paid in exchange for that service:

as a liability (accrued expense), after deducting any amount already paid. If the amount already paid exceeds theundiscounted amount of the benefits, the entity recognise that excess as an asset (prepaid expense) to the extentthat the prepayment will lead to, for example, a reduction in future payments or a cash refund; and

as an expense, unless another Standard requires or permits the inclusion of the benefits in the cost of an asset.

The expected cost of compensated absences is recognised as an expense as the employees render services that increasetheir entitlement or, in the case of non-accumulating absences, when the absence occurs. The entity measure the expectedcost of accumulating compensated absences as the additional amount that the entity expects to pay as a result of the unusedentitlement that has accumulated at the reporting date.

The entity recognise the expected cost of bonus, incentive and performance related payments when the entity has a presentlegal or constructive obligation to make such payments as a result of past events and a reliable estimate of the obligation canbe made. A present obligation exists when the entity has no realistic alternative but to make the payments.

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Accounting Policies

1.11 Employee benefits (continued)

Post-employment benefits

Post-employment benefits are employee benefits (other than termination benefits) which are payable after the completion ofemployment.

Post-employment benefit plans are formal or informal arrangements under which an entity provides post-employment benefitsfor one or more employees.

Multi-employer plans are defined contribution plans (other than state plans and composite social security programmes) ordefined benefit plans (other than state plans) that pool the assets contributed by various entities that are not under commoncontrol and use those assets to provide benefits to employees of more than one entity, on the basis that contribution andbenefit levels are determined without regard to the identity of the entity that employs the employees concerned.

Post-employment benefits: Defined contribution plans

Defined contribution plans are post-employment benefit plans under which an entity pays fixed contributions into a separateentity (a fund) and will have no legal or constructive obligation to pay further contributions if the fund does not hold sufficientassets to pay all employee benefits relating to employee service in the current and prior periods.

When an employee has rendered service to the entity during a reporting period, the entity recognise the contribution payable toa defined contribution plan in exchange for that service:

as a liability (accrued expense), after deducting any contribution already paid. If the contribution already paidexceeds the contribution due for service before the reporting date, an entity recognise that excess as an asset(prepaid expense) to the extent that the prepayment will lead to, for example, a reduction in future payments or acash refund; and

as an expense, unless another Standard requires or permits the inclusion of the contribution in the cost of an asset.

Where contributions to a defined contribution plan do not fall due wholly within twelve months after the end of the reportingperiod in which the employees render the related service, they are discounted. The rate used to discount reflects the time valueof money. The currency and term of the financial instrument selected to reflect the time value of money is consistent with thecurrency and estimated term of the obligation.

1.12 Provisions and contingencies

Provisions are recognised when: the entity has a present obligation as a result of a past event; it is probable that an outflow of resources embodying economic benefits or service potential will be required to

settle the obligation; and a reliable estimate can be made of the obligation.

The amount of a provision is the best estimate of the expenditure expected to be required to settle the present obligation at thereporting date.

Where the effect of time value of money is material, the amount of a provision is the present value of the expendituresexpected to be required to settle the obligation.

The discount rate is a pre-tax rate that reflects current market assessments of the time value of money and the risks specific tothe liability.

Where some or all of the expenditure required to settle a provision is expected to be reimbursed by another party, thereimbursement is recognised when, and only when, it is virtually certain that reimbursement will be received if the entity settlesthe obligation. The reimbursement is treated as a separate asset. The amount recognised for the reimbursement does notexceed the amount of the provision.

Provisions are reviewed at each reporting date and adjusted to reflect the current best estimate. Provisions are reversed if it isno longer probable that an outflow of resources embodying economic benefits or service potential will be required, to settle theobligation.

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Accounting Policies

1.12 Provisions and contingencies (continued)

Where discounting is used, the carrying amount of a provision increases in each period to reflect the passage of time. Thisincrease is recognised as an interest expense.

A provision is used only for expenditures for which the provision was originally recognised.

Provisions are not recognised for future operating deficits.

If an entity has a contract that is onerous, the present obligation (net of recoveries) under the contract is recognised andmeasured as a provision.

A constructive obligation to restructure arises only when an entity: has a detailed formal plan for the restructuring, identifying at least:

- the activity/operating unit or part of a activity/operating unit concerned;- the principal locations affected;- the location, function, and approximate number of employees who will be compensated for services beingterminated;- the expenditures that will be undertaken; and- when the plan will be implemented; and

has raised a valid expectation in those affected that it will carry out the restructuring by starting to implement thatplan or announcing its main features to those affected by it.

A restructuring provision includes only the direct expenditures arising from the restructuring, which are those that are both: necessarily entailed by the restructuring; and not associated with the ongoing activities of the entity

No obligation arises as a consequence of the sale or transfer of an operation until the entity is committed to the sale ortransfer, that is, there is a binding arrangement.

After their initial recognition contingent liabilities recognised in entity combinations that are recognised separately aresubsequently measured at the higher of:

the amount that would be recognised as a provision; and the amount initially recognised less cumulative amortisation.

Contingent assets and contingent liabilities are not recognised. Contingencies are disclosed in note 28.

1.13 Revenue from exchange transactions

Revenue is the gross inflow of economic benefits or service potential during the reporting period when those inflows result in anincrease in net assets, other than increases relating to contributions from owners.

An exchange transaction is one in which the entity receives assets or services, or has liabilities extinguished, and directly givesapproximately equal value (primarily in the form of goods, services or use of assets) to the other party in exchange.

Fair value is the amount for which an asset could be exchanged, or a liability settled, between knowledgeable, willing parties inan arm’s length transaction.

Measurement

Revenue is measured at the fair value of the consideration received or receivable, net of trade discounts and volume rebatesand excludes value added tax.

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Accounting Policies

1.13 Revenue from exchange transactions (continued)

Sale of goods

Revenue from the sale of goods is recognised when all the following conditions have been satisfied: the entity has transferred to the purchaser the significant risks and rewards of ownership of the goods; the entity retains neither continuing managerial involvement to the degree usually associated with ownership nor

effective control over the goods sold; the amount of revenue can be measured reliably; it is probable that the economic benefits or service potential associated with the transaction will flow to the entity;

and the costs incurred or to be incurred in respect of the transaction can be measured reliably.

Rendering of services

When the outcome of a transaction involving the rendering of services can be estimated reliably, revenue associated withthe transaction is recognised by reference to the stage of completion of the transaction at the reporting date. The outcomeof a transaction can be estimated reliably when all the following conditions are satisfied:

the amount of revenue can be measured reliably; it is probable that the economic benefits or service potential associated with the transaction will flow to the entity; the stage of completion of the transaction at the reporting date can be measured reliably; and the costs incurred for the transaction and the costs to complete the transaction can be measured reliably.

When services are performed by an indeterminate number of acts over a specified time frame, revenue is recognised on astraight line basis over the specified time frame unless there is evidence that some other method better represents the stage ofcompletion. When a specific act is much more significant than any other acts, the recognition of revenue is postponed until thesignificant act is executed.

When the outcome of the transaction involving the rendering of services cannot be estimated reliably, revenue is recognisedonly to the extent of the expenses recognised that are recoverable.

Service Charges

Service charges are based on consumption. Meters are read and billed on a monthly basis and revenue is recognisedwhen invoiced. Estimates of consumptions are made monthly when meter readings are not available. The estimates ofconsumption are recognised as revenue when invoiced. Adjustments to estimates of consumption are made in the periodwhen meters have been read. These adjustments are recognised as revenue in the invoicing period.

Interest, royalties and dividends

Revenue arising from the use by others of entity assets yielding interest, royalties and dividends or similar distributions isrecognised when:

It is probable that the economic benefits or service potential associated with the transaction will flow to the entity,and

The amount of the revenue can be measured reliably.

Interest is recognised on time proportion basis, in surplus or deficit, using the effective interest rate method.

Royalties are recognised as they are earned in accordance with the substance of the relevant agreements.

Dividends or similar distributions are recognised, in surplus or deficit, when the entity’s right to receive payment has beenestablished.

Service fees included in the price of the product are recognised as revenue over the period during which the service isperformed.

1.14 Revenue from non-exchange transactions

Revenue comprises gross inflows of economic benefits or service potential received and receivable by an entity, whichrepresents an increase in net assets, other than increases relating to contributions from owners.

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Accounting Policies

1.14 Revenue from non-exchange transactions (continued)

Conditions on transferred assets are stipulations that specify that the future economic benefits or service potential embodied inthe asset is required to be consumed by the recipient as specified or future economic benefits or service potential must bereturned to the transferor.

Control of an asset arise when the entity can use or otherwise benefit from the asset in pursuit of its objectives and can excludeor otherwise regulate the access of others to that benefit.

Exchange transactions are transactions in which one entity receives assets or services, or has liabilities extinguished, anddirectly gives approximately equal value (primarily in the form of cash, goods, services, or use of assets) to another entity inexchange.

Expenses paid through the tax system are amounts that are available to beneficiaries regardless of whether or not they paytaxes.

Non-exchange transactions are transactions that are not exchange transactions. In a non-exchange transaction, an entity eitherreceives value from another entity without directly giving approximately equal value in exchange, or gives value to anotherentity without directly receiving approximately equal value in exchange.

Restrictions on transferred assets are stipulations that limit or direct the purposes for which a transferred asset may be used,but do not specify that future economic benefits or service potential is required to be returned to the transferor if not deployedas specified.

Tax expenditures are preferential provisions of the tax law that provide certain taxpayers with concessions that are not availableto others.

The taxable event is the event that the government, legislature or other authority has determined will be subject to taxation.

Transfers are inflows of future economic benefits or service potential from non-exchange transactions, other than taxes.

Recognition

An inflow of resources from a non-exchange transaction recognised as an asset is recognised as revenue, except to the extentthat a liability is also recognised in respect of the same inflow.

As the entity satisfies a present obligation recognised as a liability in respect of an inflow of resources from a non-exchangetransaction recognised as an asset, it reduces the carrying amount of the liability recognised and recognises an amount ofrevenue equal to that reduction.

Revenue received from conditional grants, donations and funding are recognised as revenue to the extent that the entity hascomplied with any of the criteria, conditions or obligations embodied in the agreement. To the extent that the criteria,conditions or obligations have not been met a liability is recognised.

Measurement

Revenue from a non-exchange transaction is measured at the amount of the increase in net assets recognised by the entity.

When, as a result of a non-exchange transaction, the entity recognises an asset, it also recognises revenue equivalent to theamount of the asset measured at its fair value as at the date of acquisition, unless it is also required to recognise a liability.Where a liability is required to be recognised it will be measured as the best estimate of the amount required to settle theobligation at the reporting date, and the amount of the increase in net assets, if any, recognised as revenue. When a liability issubsequently reduced, because the taxable event occurs or a condition is satisfied, the amount of the reduction in the liability isrecognised as revenue.

Government Grants

Government grants are recognised as revenue when:it is probable that the economic benefits or service potential associated with the transaction will flow to the entity; the amountof the revenue can be measured reliably; and to the extent that there has been compliance with any restrictions associatedwith the grant.

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Accounting Policies

1.14 Revenue from non-exchange transactions (continued)

Operational Losses subsidy

Operational Losses are invoiced to City of Tshwane Metropolitan Municipality on a monthly basis limited to budgeted amountas approved for the financial year. The operational subsidy is recognised as income on the invoice date.

1.15 Cost of sales

When inventories are sold, the carrying amount of those inventories is recognised as an expense in the period in which therelated revenue is recognised. The amount of any write-down of inventories to net realisable value and all deficits of inventoriesare recognised as an expense in the period the write-down or loss occurs. The amount of any reversal of any write-down ofinventories, arising from an increase in net realisable value, is recognised as a reduction in the amount of inventoriesrecognised as an expense in the period in which the reversal occurs.

The related cost of providing services recognised as revenue in the current period is included in cost of sales.

Contract costs comprise: costs that relate directly to the specific contract; costs that are attributable to contract activity in general and can be allocated to the contract on a systematic and

rational basis; and such other costs as are specifically chargeable to the customer under the terms of the contract.

1.16 Operational and General Expenses

The expenses must be recorded by the entity as an expenses on the accrual basis, meaning when the expenses are incurred,not necessarily when they are paid. Expenses are generally incurred when the entity receives goods or services.

1.17 Comparative figures

When presentation or classification of items in the annual financial statement is amended, prior period comparative amountsare reclassified. The nature and reason of the reclassification is disclosed.

When accounting errors have been identified in the current financial year, the correction is made retrospectively as far as it ispractical and the prior year comparatives are restated accordingly.

The comparative figures (accounting policy and disclosure) may not be consistent with the current year accounting policiesand disclosures due to the implementation of the new GRAP standards.

1.18 Fruitless and wasteful expenditure

Fruitless expenditure means expenditure which was made in vain and would have been avoided had reasonable care beenexercised.

All expenditure relating to fruitless and wasteful expenditure is recognised as an expense in the statement of financialperformance in the year that the expenditure was incurred. The expenditure is classified in accordance with the nature of theexpense, and where recovered, it is subsequently accounted for as revenue in the statement of financial performance.

30


Accounting Policies

1.19 Irregular expenditure

Irregular expenditure is expenditure that is contrary to the Municipal Finance Management Act (Act No.56 of 2003), theMunicipal Systems Act (Act No.32 of 2000), and the Public Office Bearers Act (Act No. 20 of 1998) or is in contravention of theeconomic entity’s supply chain management policy. Irregular expenditure excludes unauthorised expenditure. Irregularexpenditure is accounted for as expenditure in the Statement of Financial Performance and where recovered, it is subsequentlyaccounted for as revenue in the Statement of Financial Performance.

Irregular expenditure that was incurred and identified during the current financial and which was condoned before year endand/or before finalisation of the financial statements must also be recorded appropriately in the irregular expenditure register. Insuch an instance, no further action is also required with the exception of updating the note to the financial statements.Irregular expenditure that was incurred and identified during the current financial year and for which condonement is beingawaited at year end must be recorded in the irregular expenditure register. No further action is required with the exception ofupdating the note to the financial statements.

Where irregular expenditure was incurred in the previous financial year and is only condoned in the following financial year, theregister and the disclosure note to the financial statements must be updated with the amount condoned.

Irregular expenditure that was incurred and identified during the current financial year and which was not condoned by theNational Treasury or the relevant authority must be recorded appropriately in the irregular expenditure register. If liability for theirregular expenditure can be attributed to a person, a debt account must be created if such a person is liable in law. Immediatesteps must thereafter be taken to recover the amount from the person concerned. If recovery is not possible, the accountingofficer or accounting authority may write off the amount as debt impairment and disclose such in the relevant note to thefinancial statements. The irregular expenditure register must also be updated accordingly. If the irregular expenditure has notbeen condoned and no person is liable in law, the expenditure related thereto must remain against the relevantprogramme/expenditure item, be disclosed as such in the note to the financial statements and updated accordingly in theirregular expenditure register.

1.20 Use of estimates

The preparation of annual financial statements in conformity with Statements of GRAP requires the use of certain criticalaccounting estimates. It also requires management to exercise its judgement in the process of applying the entity’s accountingpolicies relevant to reported amount of assets and liabilities, revenue and expenses. The areas involving a higher degree ofjudgement or complexity, or areas where assumptions and estimates are significant to the annual financial statements aredisclosed in the relevant sections of the annual financial statements. Although these estimates are based on management’sbest knowledge of current events and actions they may undertake in the future, actual results ultimately may differ from thoseestimates.

1.21 Budget information

Entity are typically subject to budgetary limits in the form of appropriations or budget authorisations (or equivalent), which isgiven effect through authorising legislation, appropriation or similar.

General purpose financial reporting by entity shall provide information on whether resources were obtained and used inaccordance with the legally adopted budget.

The approved budget is prepared on a accrual basis and presented by economic classification linked to performance outcomeobjectives.

The approved budget covers the fiscal period from 2014/07/01 to 2015/06/30.

The budget for the economic entity includes all the entities approved budgets under its control.

The audited financial statements and the budget are on the same basis of accounting therefore a comparison with thebudgeted amounts for the reporting period have been included in the Statement of comparison of budget and actual amounts.

Management considers variances above 10% of budget amount or above R 1m as significant.

Comparative information is not required.

31


Accounting Policies

1.22 Related parties

The entity operates in an economic sector currently dominated by entities directly or indirectly owned by the South AfricanGovernment. As a consequence of the constitutional independence of the three spheres of government in South Africa, onlyentities within the local sphere of government are considered to be related parties.

Management are those persons responsible for planning, directing and controlling the activities of the entity, including thosecharged with the governance of the entity in accordance with legislation, in instances where they are required to perform suchfunctions. Refer to note 29.

Close members of the family of a person are considered to be those family members who may be expected to influence, or beinfluenced by, that management in their dealings with the entity.

All related party transactions and balances not in the ordinary course of business are disclosed. However, due to thesignificance of transactions and balances with the parent municipality, these items warrant separate disclosure irrespective ofwhether they are at arms length or not.

1.23 Commitments

Commitments are disclosed in respect of contracted amounts for which delivery by the contractor is outstanding at theaccounting date, and for amounts which the Board’s approval has been obtained but not yet contracted for.

Notes to the Audited Financial StatementsFigures in Rand 2015 2014 Restated

32


Notes to the Audited Financial Statements

2. New standards and interpretations

2.1 Standards and interpretations effective and adopted in the current year

In the current year, the entity has adopted the following standards and interpretations that are effective for the currentfinancial year and that are relevant to its operations:

GRAP 6 (as revised 2010): Consolidated and Separate Financial Statements

The definition of ‘minority interest’ has been amended to ‘non-controlling interest’, and paragraph .60 was added by theImprovements to the Standards of GRAP issued in November 2010. An entity shall apply these amendments prospectivelyfor annual financial periods beginning on or after the effective date [in conjunction with the effective date to be determinedby the Minister of Finance for GRAP 105, 106 and 107]. If an entity elects to apply these amendments earlier, it shalldisclose this fact.

Paragraph .59 was amended by Improvements to the Standards of GRAP issued in November 2010. An entity shall applythese amendments prospectively for annual financial periods beginning on or after the effective date [in conjunction withthe effective date to be determined by the Minister of Finance for GRAP 105, 106 and 107] from the date at which it firstapplied the Standard of GRAP on Non-current Assets Held for Sale and Discontinued Operations. If an entity elects toapply these amendments earlier, it shall disclose this fact.

The Standards of GRAP on Transfer of Functions Between Entities Under Common Control, Transfer of FunctionsBetween Entities Not Under Common Control and Mergers amended paragraphs .03, .39, .47 to .50 and addedparagraphs .51 to .58 and .61 to .62. An entity shall apply these amendments when it applies the Standards of GRAP onTransfer of Functions Between Entities Under Common Control, Transfer of Functions Between Entities Not UnderCommon Control and Mergers.

An entity shall apply this amendment for annual financial statements covering periods beginning on or after theeffective date [in conjunction with the effective date to be determined by the Minister of Finance for GRAP 105, 106 and107].

The effective date of the amendment is for years beginning on or after 01 April 2015.

The adoption of this standard did not have a material impact on the results of the entity.

GRAP 7 (as revised 2010): Investment in Associates

Paragraphs .03 and .42 were amended by the Improvements to the Standards of GRAP issued in November 2010. Anentity shall apply these amendments prospectively for annual financial periods beginning on or after the effective date [inconjunction with the effective date to be determined by the Minister of Finance for GRAP 105, 106 and 107]. If an entityelects to apply these amendments earlier, it shall disclose this fact.

The Standards of GRAP on Transfer of Functions Between Entities Under Common Control, Transfer of FunctionsBetween Entities Not Under Common Control and Mergers amended paragraphs .22, .28 and .38 and added paragraph.24. An entity shall apply these amendments and addition when it applies the Standards of GRAP on Transfer of FunctionsBetween Entities Under Common Control, Transfer of Functions Between Entities Not Under Common Control andMergers.

An entity shall apply this amendment for audited annual financial statements covering periods beginning on or after theeffective date [in conjunction with the effective date to be determined by the Minister of Finance for GRAP 105, 106 and107].

The entity expects to adopt the amendment for the first time in the 2015 annual financial statements.

The adoption of this standard is not expected to have a material impact on the results of the entity.

GRAP 8 (as revised 2010): Interests in Joint Ventures

Paragraph .04 was amended by the Improvements to the Standards of GRAP issued in November 2010. An entity shallapply these amendments prospectively for annual financial periods beginning on or after the effective date [in conjunction

33



2. New standards and interpretations (continued)with the effective date to be determined by the Minister of Finance for GRAP 105, 106 and 107]. If an entity elects to applythese amendments earlier, it shall disclose this fact.

The Standards of GRAP on Transfer of Functions Between Entities Under Common Control, Transfer of Functions BetweenEntities Not Under Common Control and Mergers added paragraph .50 and amended paragraphs .51 and .52. Anentity shall apply these amendments and addition when it applies the Standards of GRAP on Transfer of FunctionsBetween Entities Under Common Control, Transfer of Functions Between Entities Not Under Common Control andMergers.

An entity shall apply this amendment for annual financial statements covering periods beginning on or after the effectivedate [in conjunction with the effective date to be determined by the Minister of Finance for GRAP 105, 106 and 107].

The entity expects to adopt the amendment for the first time in the 2015 annual financial statements.


GRAP 105 – Transfer of functions between entities under common control

The objective of this Standard is to establish accounting principles for the acquirer and transferor in a transfer of functionsbetween entities under common control.



GRAP 106- Transfer of functions between entities not under common control

The objective of this Standard is to establish accounting principles for the acquirer in a transfer of functions betweenentities not under common control.



GRAP 107 – Mergers

The objective of this Standard is to establish accounting principles for the combined entity and combining entities in amerger.



2.2 Standards and interpretations issued, but not yet effective

The entity has not applied the following standards and interpretations, which have been published and are mandatory forthe entity’s accounting periods beginning on or after 01 July 2015 or later periods:

34



2. New standards and interpretations (continued)

2.3 Standards and interpretations not yet effective or relevant

The following standards and interpretations have been published and are mandatory for the entity’s accounting periodsbeginning on or after 01 July 2015 or later periods but are not relevant to its operations:

GRAP 18: Segment Reporting

Segments are identified by the way in which information is reported to management, both for purposes of assessingperformance and making decisions about how future resources will be allocated to the various activities undertaken by theentity. The major classifications of activities identified in budget documentation will usually reflect the segments for whichan entity reports information to management.

Segment information is either presented based on service or geographical segments. Service segments relate to adistinguishable component of an entity that provides specific outputs or achieves particular operating objectives that are inline with the entity’s overall mission. Geographical segments relate to specific outputs generated, or particular objectivesachieved, by an entity within a particular region.This Standard has been approved by the Board but its effective date has not yet been determined by the Minister ofFinance. The effective date indicated is a provisional date and could change depending on the decision of the Minister ofFinance.

Directive 2 - Transitional provisions for public entities, municipal entities and constitutional institutions, states that nocomparative segment information need to be presented on initial adoption of this Standard.

Directive 3 - Transitional provisions for high capacity municipalities states that no comparative segment information needto be presented on initial adoption of the Standard. Where items have no been recognised as a result of transitionalprovisions under the Standard of GRAP on Property, Plant and Equipment, recognition requirements of this Standardwould not apply to such items until the transitional provision in that Standard expires.

Directive 4 – Transitional provisions for medium and low capacity municipalities states that no comparative segmentinformation need to be presented on initial adoption of the Standard. Where items have not been recognised as a result oftransitional provisions un the Standard of GRAP on Property, Plant and Equipment and the Standard of GRAP onAgriculture, the recognition requirements of the Standard would not apply to such items until the transitional provision inthat standard expires.

The effective date of the standard is for years beginning on or after 01 April 2016.

The entity expects to adopt the standard for the first time in the 2017 unaudited annual financial statements.

GRAP 108 - Statutory Receivables

The objective of this Standard is: to prescribe accounting requirements for the recognition, measurement, presentation anddisclosure of statutory receivables.

It furthermore covers: Definitions, recognition, derecognition, measurement, presentation and disclosure, transitionalprovisions, as well as the effective date.

The effective date of the standard is not yet set by the Minister of Finance.

The entity expects to adopt the standard for the first time when the Minister set the effective date for the standard.

The adoption of this standard is not expected to impact on the results of the entity, but may result in more disclosure thanis currently provided in the financial statements.

IGRAP 17: Service Concession Arrangements where a Grantor Controls a Significant Residual Interest in an Asset

This Interpretation of the Standards of GRAP provides guidance to the grantor where it has entered into a serviceconcession arrangement, but only controls, through ownership, beneficial entitlement or otherwise, a significant residualinterest in a service concession asset at the end of the arrangement, where the arrangement does not constitute a lease.

35



2. New standards and interpretations (continued)This Interpretation of the Standards of GRAP shall not be applied by analogy to other types of transactions orarrangements.

A service concession arrangement is a contractual arrangement between a grantor and an operator in which the operatoruses the service concession asset to provide a mandated function on behalf of the grantor for a specified period of time.The operator is compensated for its services over the period of the service concession arrangement, either throughpayments, or through receiving a right to earn revenue from third party users of the service concession asset, or theoperator is given access to another revenue-generating asset of the grantor for its use.

Before the grantor can recognise a service concession asset in accordance with the Standard of GRAP on ServiceConcession Arrangements: Grantor, both the criteria as noted in paragraph .01 of this Interpretation of the Standards ofGRAP need to be met. In some service concession arrangements, the grantor only controls the residual interest in theservice concession asset at the end of the arrangement, and can therefore not recognise the service concession asset interms of the Standard of GRAP on Service Concession Arrangements: Grantor.

A consensus is reached, in this Interpretation of the Standards of GRAP, on the recognition of the performance obligationand the right to receive a significant interest in a service concession asset.

The effective date of the standard is not yet set by the Minister of Finance.

The entity expects to adopt the standard for the first time when the Minister set the effective date for the standard.


3. Cash and cash equivalents

Cash and cash equivalents consist of:

Cash on hand 12 144 8 900Bank balances 22 267 220 13 882 232

22 279 364 13 891 132

The entity had the following bank accounts

`

Account number / description Bank statement balances Cash book balances30 June 2015 30 June 2014 30 June 2013 30 June 2015 30 June 2014 30 June 2013

ODI 32250738 - Standard Bank- Current Account

382 346 5 801 687 7 336 707 376 111 5 686 626 7 189 506

ODI 31906842 - Standard Bank- Salary Account

1 196 499 187 996 166 095 1 164 140 187 996 166 096

ODI 738717959 - StandardBank - Call Account

17 806 359 4 524 666 3 896 360 17 806 359 4 524 667 3 896 360

SWA 4051139634 - ABSA -Current Account

2 769 397 3 318 984 706 559 2 750 620 3 318 984 706 559

SWA 9074185817 - ABSA -Money Market Account

174 297 163 959 156 627 169 990 163 959 156 012

Total 22 328 898 13 997 292 12 262 348 22 267 220 13 882 232 12 114 533

4. Receivables and other receivables from exchange transactions

Trade debtors 577 712 421 459 595 124Madibeng Municipality 9 940 518 17 440 518Provision for Impairment: Consumer Debtors (565 226 021) (443 654 725)Other receivables 182 708 384 431Provision for Impairment: Madibeng Municipality (9 940 518) (17 440 518)

12 669 108 16 324 830

36


Notes to the Audited Financial StatementsFigures in Rand 2015 2014

4. Receivables and other receivables from exchange transactions (continued)

Credit quality of trade and other receivables

The credit quality of trade and other receivables that are neither past nor due nor impaired can be assessed by reference toexternal credit ratings (if available) or to historical information about counterparty default rates:

Trade receivables

Credit quality of trade and other receivablesTrade Receivables 12 486 400 15 940 399Other Receivables 182 708 384 431

12 669 108 16 324 830

Summary of Debtors per customer typeResidential debtors 559 040 910 449 427 805Commercial debtors 11 497 676 4 223 030Government debtors 17 114 353 23 384 807

587 652 939 477 035 642

These debtors relate to the provision of services of water and sanitation in the area of Mabopane, Winterveldt andGarankuwa.Included in the Government debtors is an amount of R 9 940 518 (2014: R 17 440 518) which relates to Madibeng LocalMunicipality.

Age Analysis: Residential DebtorsCurrent (0 - 30 days) 11 049 347 10 849 57631 - 60 days 13 137 034 10 044 40161 - 90 days 10 794 182 8 575 43291 - 120 days 12 586 176 8 261 177121 - 150 days 10 575 428 8 725 575151- 180 days 15 663 029 10 200 658Over 180 days 485 235 714 392 770 986

559 040 910 449 427 805

Age Analysis: Commercial DebtorsCurrent (0 - 30 days) 1 846 130 (106 410)31 - 60 days 1 221 938 325 91861 - 90 days 771 253 354 36191 - 120 days 1 578 612 287 144121 - 150 days 1 701 686 322 444151- 180 days 188 442 155 096Over 180 days 4 189 615 2 884 477

11 497 676 4 223 030

Age Analysis: Government DebtorsCurrent (0 - 30 days) 172 354 112 87731 - 60 days 301 203 442 14961 - 90 days 775 607 317 28191 - 120 days 732 496 518 121121 - 150 days 340 555 122 130151- 180 days 312 727 49 184Over 180 days 14 479 411 21 823 065

17 114 353 23 384 807

37



4. Receivables and other receivables from exchange transactions (continued)

Trade and other receivables past due but not impaired

Trade and other receivables which are more than 1 month past due are not considered to be impaired. At 30 June 2015, R7 924 519 (2014: R 10 146 983) were past due but not impaired.

The ageing of amounts past due but not impaired is as follows:

1 month past due 1 523 141 767 2282 months past due 1 546 859 923 3833 months past due 4 854 519 8 456 372

Trade and other receivables impaired

As of 30 June 2015, trade and other receivables of R 128 180 077 (2014: R 95 408 282) were impaired and provided for.

The amount of the provision was R 575 166 538 as of 30 June 2015 (2014: R 461 095 243).

Reconciliation of provision for impairment of trade and other receivables

Opening balance (461 095 243) (388 083 828)Provision for impairment (142 835 954) (106 361 564)Amounts written off as uncollectible 21 264 659 28 850 149Amounts recovered during the year 7 500 000 4 500 000

(575 166 538) (461 095 243)

The creation and release of provision for impaired receivables have been included in operating expenses in surplus ordeficit.

The maximum exposure to credit risk at the reporting date is the fair value of each class of recievables mentioned above.The entity does not hold any collateral as security.

Included in the provision for impairment above is an amount of R 9 940 518 (2014: R 17 440 518) which relates toMadibengLocal Municipality.

5. Receivables from non-exchange transactions

Government grants and subsidies 118 572 232 72 969 891Provision for VAT: Other Receivables (14 561 502) (8 961 215)

104 010 730 64 008 676

Credit quality of receivables from non-exchange transactions

The credit quality of other receivables from non-exchange transactions that are neither past nor due nor impaired can beassessed by reference to external credit ratings (if available) or to historical information about counterparty default rates:

Receivables from non-exchange transactions

Receivables from non exchange transactionsCity of Tshwane Metropolitan Municipality: Operational Losses 88 154 488 60 656 843City of Tshwane Metropolitan Municipality: Waste Water Treatment Works 15 856 242 3 351 833

104 010 730 64 008 676

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6. VAT receivable

VAT 2 199 762 -

7. Inventories

Raw materials 2 679 147 2 890 773Water Stock 804 331 610 625

3 483 478 3 501 398Obsolete Inventory Items (354 245) (118 484)

3 129 233 3 382 914

Carrying value of inventories carried at fair value less costs to sell 804 331 610 625

Inventories recognised as an expense during the year 167 838 325 132 104 670

Inventory consists of water stock, spares and consumables which will be utilised by the entity in their daily businessoperations.

Raw materials and spare parts that have not moved for 550 days are considered obsolete/ redundant and are written off.

8. Property, plant and equipment

2015 2014

Cost /Valuation

Accumulateddepreciation

andaccumulatedimpairment

Carrying value Cost /Valuation

Accumulateddepreciation


Carrying value

Buildings 7 383 244 (3 205 844) 4 177 400 7 383 244 (2 860 300) 4 522 944Plant and machinery 13 102 462 (10 796 022) 2 306 440 12 689 770 (9 897 366) 2 792 404Furniture and fixtures 1 706 798 (1 506 989) 199 809 1 689 547 (1 384 385) 305 162Motor vehicles 4 117 967 (4 117 954) 13 4 117 967 (4 026 081) 91 886IT equipment 3 134 187 (2 722 224) 411 963 2 827 753 (2 510 233) 317 520

Total 29 444 658 (22 349 033) 7 095 625 28 708 281 (20 678 365) 8 029 916

Reconciliation of property, plant and equipment - 2015

Openingbalance

Additions Disposals Depreciation Total

Buildings 4 522 944 - - (345 544) 4 177 400Plant and machinery 2 792 404 412 692 - (898 656) 2 306 440Furniture and fixtures 305 162 15 853 - (121 206) 199 809Motor vehicles 91 886 - - (91 873) 13IT equipment 317 520 347 691 (19 993) (233 255) 411 963

8 029 916 776 236 (19 993) (1 690 534) 7 095 625

39



8. Property, plant and equipment (continued)

Reconciliation of property, plant and equipment - 2014

Openingbalance

Additions Depreciation Total

Buildings 4 868 488 - (345 544) 4 522 944Plant and machinery 3 667 030 10 454 (885 080) 2 792 404Furniture and fixtures 387 958 96 531 (179 327) 305 162Motor vehicles 183 761 - (91 875) 91 886IT equipment 274 882 217 995 (175 357) 317 520

9 382 119 324 980 (1 677 183) 8 029 916

9. Intangible assets

2015 2014

Cost /Valuation

Accumulatedamortisation


Carrying value Cost /Valuation

Accumulatedamortisation


Carrying value

Computer software, other 102 485 (67 653) 34 832 102 485 (26 160) 76 325

Reconciliation of intangible assets - 2015

Openingbalance

Amortisation Total

Computer software, other 76 325 (34 161) 34 832

Reconciliation of intangible assets - 2014

Openingbalance

Additions Amortisation Total

Computer software, other 71 273 29 409 (24 357) 76 325

10. Trade and Other Payables from exchange transactions

Trade payables 34 850 585 34 841 350Payments received in advanced 1 109 756 1 551 045Salary Control Account 1 201 710 116 242Accrued bonus: 13th Cheque 1 838 990 1 717 954Accrual for Water Purchases 112 635 026 62 153 497Other payables 3 105 787 2 341 086Provision for VAT on Payables (14 858 461) (8 525 478)

139 883 393 94 195 696

All current liabilities will be settled within 12 months. Suppliers are paid within 30 days from Invoice date.

The table below show the Accrued Bonus 13th cheque movement reconciliation.

40



10. Trade and Other Payables from exchange transactions (continued)

Accrued Bonus: 13th Cheque 2015 2014Opening Balance 1 717 954 1 578 658Additions 4 476 954 1 717 954Utilised/Reversed during the year (4 355 918) (1 578 658)

1 838 990 1 717 954

11. Unspent Conditional Grant

Certian income was received in advance and has been deferred during the year. Income received in advance representsmonies received from customers to be utilised for specific projects in future periods.These funds are outlined below asfollows:

Unspent Conditional Grant

Payment received in advanceNew Meter and repeat offenders project 278 854 278 854

Movement during the year

Balance at the beginning of the year 278 854 1 164 242Additions during the year - 1 338 789Income recognition during the year - (673 132)Reclassification of error (refer to note 34) - (1 551 045)

278 854 278 854

12. Consumer deposits

Water 3 756 137 3 725 662

13. Operating lease asset (accrual)

Non-current liabilities (550 920) (25 503)Current liabilities (95 513) (286 147)

(646 433) (311 650)

14. Payroll Provisions

Reconciliation of payroll provisions - 2015

OpeningBalance

Additions Utilisedduring the

year

Total

Leave Pay Provision 6 266 223 790 245 (1 924 046) 5 132 422

Reconciliation of payroll provisions - 2014

OpeningBalance

Additions Total

Leave Pay Provision 4 390 609 1 875 614 6 266 223

The provisions relate to leave pay provision.

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15. VAT payable

Tax payables - 290 318

16. Financial instruments disclosure

Categories of financial instruments

2015

Financial assets

At amortisedcost

Total

Cash and cash equivalents 22 279 364 22 279 364Trade and other receivables from exchange transactions 10 952 982 10 952 982Other receivables from exchange transactions 182 277 182 277City of Tshwane Metropolitan Municipality: Operational Losses 88 154 488 88 154 488City of Tshwane Metropolitan Municipality: Waste Water Treatment Works 15 856 242 15 856 242

137 425 353 137 425 353


At amortisedcost

Total

Trade and other payables from exchange transactions 136 934 647 136 934 647Consumer Deposits 3 756 137 3 756 137Bonus Accrual - 13th Cheque 1 838 990 1 838 990

142 529 774 142 529 774

2014

Financial assets

At amortisedcost

Total

Cash and cash equivalents 13 891 132 13 891 132Trade and other receivables from exchange transactions 13 982 806 13 982 806Other receivables from exchange transactions 356 524 356 524City of Tshwane Metropolitan Municipality: Operational Losses 60 656 843 60 656 843City of Tshwane Metropolitan Municipality: Waste Water Treatment Works 3 351 833 3 351 833

92 239 138 92 239 138


At amortisedcost

Total

Trade and other payables from exchange transactions 90 926 697 90 926 697Consumer Deposits 3 725 662 3 725 662Bonus Accrual - 13th Cheque 1 717 954 1 717 954

96 370 313 96 370 313

42



17. Revenue

Water Income 191 827 986 159 945 340Government grants & subsidies 234 340 599 201 518 285

426 168 585 361 463 625

The amount included in revenue arising from exchanges of goods or servicesare as follows:Water Income 191 827 986 159 945 340

The amount included in revenue arising from non-exchange transactions is asfollows:Taxation revenueTransfer revenueGovernment grants & subsidies 234 340 599 201 518 285

18. Other Income

Bad Debt Recovered 6 646 305 4 020 960Conditional grant income: Project Meter Offenders - 16 975

6 646 305 4 037 935

The amount included in other income are as follows:Sundry Income 67 353 73 591Bad debts recovered 6 578 948 3 947 369Conditional grant income: Project Meter Offenders - 16 975

6 646 301 4 037 935

19. Cost of sales

Sale of goodsBulk Water Purchases 167 838 325 132 104 670Sewer Purification Costs 9 535 702 9 329 156Water and Electricity 7 089 025 7 587 368

184 463 052 149 021 194

43



20. General expenses

Advertising 102 718 258 497Auditors remuneration 1 273 144 1 254 089Bank charges 460 152 395 500Cleaning 1 130 117 1 137 655Computer expenses 25 863 138 771Consulting and professional fees 998 001 1 925 744Delivery expenses 9 136 11 464Donations 5 650 8 096Entertainment 142 901 279 715Insurance 659 184 471 617Lease rentals on operating lease 9 294 068 10 127 812Motor vehicle expenses 607 147 1 873 532Postage and courier 14 070 16 120Printing and stationery 222 589 307 004Protective clothing 343 985 305 070Security Costs 7 862 590 7 110 042Staff welfare 172 718 170 000Subscriptions and membership fees 15 050 18 318Telephone and fax 1 424 972 1 532 311Training 604 871 138 456Travel - local 68 353 65 402Water and Electricity 708 707 505 842Repairs and Maintenance 9 995 907 12 047 393Garden Service 365 704 195 095Board Fees 773 845 439 273Indigent Rebates 20 251 357 16 408 730Billing charges 4 436 496 5 268 617Other expenses 6 097 827 5 421 793

68 067 122 67 831 958

21. Operating deficit

Operating deficit for the year is stated after accounting for the following:

Operating lease chargesPremises Straight Lined Expenses 3 085 834 2 700 493Motor vehicles Contractual amounts 4 382 910 5 579 946Equipment Contractual amounts 242 061 271 496Plant and equipment Contractual amounts 1 583 263 1 575 877

9 294 068 10 127 812

Loss on disposal of property, plant and equipment 19 993 -Depreciation on property, plant and equipment 1 732 029 1 701 541Employee costs 85 891 521 84 285 454

44



22. Employee related costs

Basic 60 735 191 57 998 711Bonus 3 796 238 3 774 038Medical aid - company contributions 8 378 438 7 730 323UIF 422 945 424 200WCA 539 926 703 086SDL 752 954 705 754Leave pay provision charge 1 318 124 3 713 735Group Life Insurance 3 698 040 3 453 029Housing Bond Subsidies 830 843 751 445Company Contributions - Provident Fund 5 418 822 5 031 133

85 891 521 84 285 454

23. Debt impairment

Debt impairment 128 180 077 95 408 282

24. Interest Earned

Interest revenueInterest from Bank 830 813 417 474Interest charged on trade receivables 35 793 337 27 473 969

36 624 150 27 891 443

25. Auditors' remuneration

Fees 5 326 897 378Adjustment for previous year 1 267 818 356 711

1 273 144 1 254 089

26. Cash generated from operations

Surplus (deficit) 1 076 025 (4 920 757)Adjustments for:Depreciation and amortisation 1 732 029 1 701 541Loss on disposal of assets 19 993 -Debt impairment 128 180 077 95 408 282Movements in operating lease assets and accruals 334 783 162 945Movements in provisions (1 133 801) 1 875 614Changes in working capital:Inventories 253 681 (612 106)Receivables and other receivables from exchange transactions 3 655 722 1 007 847Debt Impairment (128 180 077) (95 408 282)Other receivables from non-exchange transactions (40 002 054) 2 127 318Trade and Other Payables from exchange transactions 45 687 699 (217 145)VAT (2 490 080) 1 235 910Unspent Conditional Grant - (471 062)Consumer deposits 30 475 231 986

9 164 472 2 122 091

45



27. Commitments

Commitments

Minimum payments due - within one year 15 794 844 21 845 753 - in second to fifth year inclusive 27 929 515 19 498 946

43 724 359 41 344 699

Operating lease payments represent rentals payable by the entity for certain of its office properties. Leases are negotiatedfor an average term of seven years and rentals are fixed for an average of three years. No contingent rent is payable.

Sandspruit Works Association has a financial commitments resulting from a multi-year contracts. The following multi-yearcontracts existed at year end and are of a variable nature (i.e. as and when required basis):1. Water Tankers Hire - R 2000.00 per load.2. TLB Hire - R185.00 per hour.3. Legal Consultant - R 1 500.00 per hour.4. Installation of Domestic Meter - R230.00 per meter.

28. Contingencies

As at 30 June 2015, an amount of R 219 750 remained in dispute with Ndou Attorneys relating to work performed for theinvestigation in the case of suspended CEO.

29. Related parties

`

RelationshipsParent Municipality City of Tshwane Metropolitan Municipality

Since Housing Company Tshwane and Tshwane Economic Development Agency are within the common control of theparentmunicipality (CTMM), these are considered to be related parties to Sandspruit Works Association

Related party balances

Loan accounts - Owing (to) by related partiesCTMM Sanitation Losses (34 298 530) (34 298 530)

Amounts included in Trade receivable (Trade Payable) regarding related partiesCTMM Operating Loss Account (12 138 910) 6 995 304CTMM Waste Water Treatment Works 18 076 115 3 821 089CTMM Water Accounts 3 298 235 1 451 298

Related party transactions

Sales to related partiesSales to CTMM (140 954 128) (116 864 173)

Purchases from related partiesBulk Water Purchases 168 095 578 132 532 414Electricity Purchases 1 611 919 2 876 785

Grant Subsidy ReceivedSubsidy Received from CTMM (193 576 330) (161 457 228)

46



30. Directors' emoluments

Executive Director and Senior Management

2015

Basic Salary VehicleAllowance

PerformanceBonus or 13th

Cheque

Medical andRetirement

FundContributions

OtherAllowances

andContributions

Total

Chief Executive Officer 1 434 399 144 000 - - 94 809 1 673 208Operations Manager 527 068 204 008 43 922 136 211 157 455 1 068 664Chief Financial Officer (Retired31 December 2014)

260 853 102 004 43 476 57 951 192 084 656 368

Human Resources Manager 521 706 204 008 43 476 111 596 149 535 1 030 321Legal Manager 521 706 204 008 43 476 87 192 120 219 976 601Risk Manager 490 799 195 368 32 606 117 581 136 552 972 906Marketing andCommunications Manager

432 270 167 786 43 476 105 558 99 328 848 418

Deputy Chief Financial Officer(Acting CFO)

521 706 204 008 43 476 147 902 186 180 1 103 272

4 710 507 1 425 190 293 908 763 991 1 136 162 8 329 758

2014

Basic Salary VehicleAllowance

PerformanceBonus &/or

13th Cheque

Medical andRetirement

FundContributions

OtherAllowances

andContributions

Total

Chief Executive Officer 1 360 879 144 000 130 592 - 83 389 1 718 860Operations Manager 492 587 190 662 41 049 166 045 85 519 975 862Chief Financial Officer 489 156 190 662 40 631 158 474 66 690 945 613Human Resources Manager 477 030 190 662 20 316 134 861 62 441 885 310Legal Manager 519 216 190 662 40 631 118 399 69 115 938 023Marketing andCommunications Manager

275 427 95 331 40 631 56 114 175 949 643 452

3 614 295 1 001 979 313 850 633 893 543 103 6 107 120

Non-executive

2015

Directors' fees AnnualRetainer

Audit andPerformanceCommittee

Fees

Other fees Total

ZM Kabini (Non Executive: Chairperson) 10 180 - 10 180 30 540 50 900Adv K-D Garlip (Non Executive) 144 347 53 000 56 647 30 540 284 534CV Maboka (Non Executive) 75 119 27 000 - 30 540 132 659KA Eales (Non Executive) 20 781 - - - 20 781LN Bokaba 94 299 27 000 - 30 540 151 839TL Moromane (Non Executive) 52 686 27 000 - - 79 686Adv BM Malatji (Non Executive) 7 635 - - 30 540 38 175AZ Ndlala (Non Executive) - - - 15 270 15 270

405 047 134 000 66 827 167 970 773 844

2014

47



30. Directors' emoluments (continued)

Directors' fees TotalAdv K-D Garlip (Non Executive) 118 693 118 693CV Maboka (Non Executive) 104 696 104 696KA Eales (Non Executive) 52 672 52 672LN Bokaba 81 606 81 606TL Moromane (Non Executive) 81 606 81 606

439 273 439 273

31. Prior period errors

In the current year, a prior period error amounting to R 1 985 500 relating to VAT on Trade Receivables from exchangetransactions was identified. The trade receivables (i.e. consumer debtors was reflected net of VAT. This is incorrect as thetrade receivables should have been disclosed inclusive of VAT and the VAT should be disclosed as a liability.

The error is as a result of oversight from management.

The correction of the error(s) results in adjustments as follows:

Statement of financial positionTrade and Other Receivables from exchange transactions - 14 339 330Increase in Trade receivables as a result of Prior period Error - 1 985 500Trade and Other Receivables from exchange transactions after prior period error - 16 324 830VAT Receivables as previously disclosed - 1 695 182Decrease in VAT receivables as a result of Prior period Error - (1 985 500)VAT Receivables/(Paybles) after prior period error - (290 318)

32. Change in estimate

Accounting Estimates

An entity shall disclose the nature and amount of a change in an accounting estimate that has an effect in the currentperiod or is expected to have an effect in future periods, except for the disclosure of the effect on future periods when it isimpracticable to estimate that effect.

During the current year, there were no changes in accounting estimates

33. Comparative Figures

Certain comparative figures have been reclassified.

In the prior year an amount amounting to R 7 984 177 which relates to Provision was incorrectly included as partTrade and Other Payables from Exchange Transactions . This amount requires separate disclosure in the Annual FinancialStatement as it is not regarded as payables from exchange transactions.

48



33. Comparative Figures (continued)

In the prior year, certain expenditure items were incorrectly classified as cost of sales instead of other expenditure.

Also, in the prior year, an amount in the cash flow statement relating to operational grant received from the City of TshwaneMetropolitan Municipality relating to WWTW receipts from sale of goods and services instead of grant receipts. Note 17 hasalso been restated due to this reclassification.

The related party disclosure note relating to water purchases was restated due to an amount of R 300 046 which wasincorrectly excluded from the related party transaction.

The commitment note disclosure has been restated due to the fact that the prior year amount was understated by R 6 732551.

The effect of the all Reclassifications/ Restatements are outlined in the table below:

Statement of Financial Position 2014Previously

Stated

Reclassification

2014 Restated

Trade and other payables 98 910 876 (4 715 178) 94 195 698Payroll Provisions - 6 266 223 6 266 223Unspent conditional grants 1 829 899 (1 551 045) 278 854

100 740 775 - 100 740 775

Statement of Financial Performance 2014Previously

Stated

Reclassification

2014 Restated

Cost of Sales 154 553 395 (5 532 201) 149 021 194Other Expenditure 243 760 367 5 532 201 249 292 568

398 313 762 - 398 313 762

Cash Flow Statement 2014Previously

Stated

Reclassification

2014 Restated

Cash flows from operating activitiesReceiptsSale of goods and services 129 726 188 (43 288 823) 86 437 365Grants 161 719 031 43 288 823 205 007 854

291 445 219 - 291 445 219

Related Party disclosure 2014Previously

Stated

2014 Restated Difference

Water purchases from CoT 132 232 368 132 532 414 300 046

Commitment Note disclosure 2014Previously

Stated

2014 Restated Difference

Minimum payments duein second to fifth year inclusive 12 766 395 19 498 946 6 732 551

49



34. Risk management

Financial risk management

The entity’s activities expose it to a variety of financial risks: market risk (including currency risk, fair value interest rate risk,cash flow interest rate risk and price risk), credit risk and liquidity risk.

The entity’s overall risk management program focuses on the unpredictability of financial markets and seeks to minimisepotential adverse effects on the entity’s financial performance. The directors provides written principles for overall riskmanagement, as well as written policies covering specific areas, such as credit risk.

Liquidity risk

The entity’s risk to liquidity is a result of the funds available to cover future commitments. The entity manages liquidity riskthrough an ongoing review of future commitments and credit facilities.

Cash flow forecasts are prepared and monitored adequately.

The table below analyses the entity’s financial liabilities and net-settled derivative financial liabilities into relevant maturitygroupings based on the remaining period at the statement of financial position to the contractual maturity date. Theamounts disclosed in the table are the contractual undiscounted cash flows. Balances due within 12 months equal theircarrying balances as the impact of discounting is not significant.

As at 30 June 2015 Due in lessthan a year

Due in one totwo years

Total

Trade and Other Payables 136 934 647 - 136 934 647Bonus Accrual - 13th Cheque 1 838 990 - 1 838 990Consumer Deposits 3 756 137 - 3 756 137

142 529 774 - 142 529 774

As ast 30 June 2014 (Restated) Due in lessthan a year

Due in one totwo years

Total

Trade and Other Payables 90 926 697 - 90 926 697Bonus Accrual - 13th Cheque 1 717 954 - 1 717 954Consumer Deposits 3 725 662 - 3 725 662

96 370 313 - 96 370 313

50



34. Risk management (continued)

Credit risk

Credit risk consists mainly of cash deposits, cash equivalents, derivative financial instruments and trade debtors. The entityonly deposits cash with major banks with high quality credit standing and limits exposure to any one counter-party.

Trade receivables comprise of residential, government and commercial consumers. Management evaluated credit riskrelating to customers on an ongoing basis. Since our customers are not independently rated, credit control assesses thecredit quality of the customer, taking into account its financial position, past experience and other factors. Sales to retailcustomers are settled in cash or using major credit cards.

The carrying amount of financial assets represents the maximum credit exposure. The maximum credit exposure to thecredit risk as the reporting date was as follows:

`

Financial instrument 2015 Restated 2014Trade Receivables 10 952 982 16 324 830City of Tshwane Metropolitan Municipality: Operational Losses Subsidy 88 154 488 60 656 843City of Tshwane Metropolitan Municipality: Waste Water Treatment Works 15 856 242 3 351 834Other Receivables 182 708 384 431ABSA Bank 2 920 610 3 482 943Standard Bank 19 346 611 10 399 289

Market risk

Interest rate risk

As the entity has no significant interest-bearing assets, the entity’s income and operating cash flows are substantiallyindependent of changes in market interest rates.

35. Going concern

The audited financial statements have been prepared on the basis of accounting policies applicable to a going concern.This basis presumes that funds will be available to finance future operations and that the realisation of assets andsettlement of liabilities, contingent obligations and commitments will occur in the ordinary course of business.

The ability of the entity to continue as a going concern is dependent on a number of factors. The most significant of these isthat the CTMM will subordinate its debt owed by SWA to CTMM in favour of other creditors and that the entity continues tobe supported financially by the parent municipality.

36. Events after the reporting date

The Accounting Officer is not aware of any matter or circumstance arising since the period ending 30 June 2015.

37. Fruitless and wasteful expenditure

Penalty Sec83(6) Workmans Compensation Act - 50 287

No Fruitless and Wasteful expenditure incurred in the current year.

38. Irregular expenditure

Opening balance 17 698 636 10 493 121Add: Irregular Expenditure - current year 14 251 713 7 205 515Less: Amounts condoned/ written off (707 405) -

31 242 944 17 698 636

51



38. Irregular expenditure (continued)

Analysis of expenditure awaiting condonation per age classification

Current year 14 251 713 7 205 515Prior years 17 698 636 10 493 121

31 950 349 17 698 636

Details of irregular expenditure – current yearDisciplinary steps taken/criminal proceedings

Manhole covers made from polkymer materials None. Amount written off 73 391Municipal Finance Management Program None. Amount written off 289 332TLB Hire at WWTW None. Amount written off 28 500Grass cutting at Rietgat WWTW None. Amount written off 28 158Repairs and maintenace at water purificationworks

None. Amount written off 30 435

Facilitation of strategic workshop anddevelopment of Turnaround strategy

171 000

Other items below R 10 000 individually None. Amount written off 36 577Supply and delivery of Customised ODI Diaries None. Amount written off 38 500Annual Software license Fee None. Amount written off 11 512Various repairs and maintenance at variousWWTW

None. Awaiting Investigation/ condonement 8 981 217

TLB Hire None. Awaiting Investigation/ condonement 1 210 825Cash Collection Security Services None. Awaiting Investigation/ condonement 312 893Grading of Job profiles None. Awaiting Investigation/ condonement 33 354Office cleaning products None. Awaiting Investigation/ condonement 268 872Cutting of grass services None. Awaiting Investigation/ condonement 35 867Other various WWTW expenses None. Awaiting Investigation/ condonement 126 120Municipal Finance Management Programme None. Awaiting Investigation/ condonement 289 332Repair and Removal of branding on vehicles None. Awaiting Investigation/ condonement 33 516Valid emergencies reclassified due to lack ofrotation of suppliers

None. Awaiting Investigation/ condonement 363 884

Repairs to submersible pump None. Awaiting Investigation/ condonement 29 901DN300 Hydroclass pipe due to pipe burst inGarankuwa

53 153

Cleaning of all SWA offices None. Awaiting Investigation/ condonement 1 015 700Legal Fees None. Awaiting Investigation/ condonement 679 875Accommodation hire for IMESA conference None. Awaiting Investigation/ condonement 14 847Secretarial services for Board meetings None. Awaiting Investigation/ condonement 5 903Venue Hire for Board meeting None. Awaiting Investigation/ condonement 5 212Catering during Kukamaoto None. Awaiting Investigation/ condonement 4 200Transport for funeral arrangements None. Awaiting Investigation/ condonement 4 900Advertising of position on newspapers None. Awaiting Investigation/ condonement 33 902Incident Investigation training None. Awaiting Investigation/ condonement 40 835

14 251 713

52



38. Irregular expenditure (continued)

Details of irregular expenditure condonedAmounts written off by Board of Directors

Manhole covers Written off 73 391Municipal Finance Management Program Written off 289 332TLB Hire at WWTW Written off 28 500Grass cutting at Rietgat WWTW Written off 28 158Repairs and maintenace at water purificationworks

Written off 30 435

Facilitation of strategic workshop anddevelopment of Turnaround strategy

Written off 171 000

Other items below R 10 000 individually Written off 36 577Supply and delivery of Customised ODI Diaries Written off 38 500Annual Software license Fee Written off 11 512

707 405

39. Regulation 45

As per section 45 of the MFMA SCM regulations, awards to close family members of persons in the service of the state thenotes to the annual financial statements of a municipality must disclose particulars of any award of more than R2 000 to aperson who is a spouse, child or parent of a person in the service of the state or has been in the service of the state in theprevious 12 monthsindicating:1. The name of that person2. The capacity in which that person is in the service of the state/municipality; and3. The amount of the award.

The information regarding awards made for the financial year is indicated below:

No Awards were made in contravention of regulation 45.

40. Reconciliation between budget and statement of financial performance

Reconciliation of budget surplus/deficit with the surplus/deficit in the statement of financial performance:

Net surplus (deficit) per the statement of financial performance 1 076 025 (4 920 757)Adjusted for:Over/(Under) budgeted for Sanitation Revenue (1 438 657) 870 447Over/(Under) budgeted for Water Revenue (7 418 063) 2 880 564Over/(Under) budgeted for Waste Water Revenue 7 818 391 4 195 507Over/(Under) budgeted for Other Income (628 131) (222 814)Over/(Under) budgeted on Interest earned on Debtors (6 023 659) (862 611)Over/(Under) budgeted on Other Revenue (29 123 202) 13 519 871Over/(Under) budgeted on Personnel Costs (9 260 036) (2 686 285)Over/(Under) budgeted on Remuneration for Board Members 95 629 (107 128)Over/(Under) budgeted on depreciation and amortisation (727 352) (563 706)Over/(Under) budgeted on debt impairment 43 096 040 11 971 038Over/(Under) budgeted on General Expenses (18 010 154) (29 766 640)Over/(Under) budgeted on Collection costs (1 406 093) -Over/(Under) budgeted on Bulk purchases 21 929 269 5 692 514Over/(Under) budgeted on Loss on disposal 19 993 -

Net surplus per approved budget - -

41. Reconciliation between budget and cash flow statement

Reconciliation of budget surplus/deficit with the net cash generated from operating, investing and financing activities:

53



41. Reconciliation between budget and cash flow statement (continued)

Operating activitiesActual amount as presented in the budget statement 9 164 472 2 122 089

Investing activitiesActual amount as presented in the budget statement (776 240) (354 390)

Net cash generated from operating, investing and financing activities 8 388 232 1 767 699

42. Additional disclosure in terms of Municipal Finance Management Act

Material losses through criminal conduct

Material losses have been disclosed under note 43. This relate mainly to illegal connections.

Audit fees

Current year fees 1 316 684 1 254 089Amount paid - current year (1 316 684) (1 254 089)

- -

PAYE and UIF

Opening balance - (930 782)Current year deductions and contributions (14 745 528) (14 739 224)Amount paid - current year 13 594 028 15 670 006

(1 151 500) -

Pension and Medical Aid Deductions

Opening balance (116 242) (102 871)Current year deductions and contributions (24 569 421) (18 784 013)Amount paid - current year 24 685 663 18 770 642

- (116 242)

VAT

VAT receivable 2 199 762 -VAT payable - 290 318

2 199 762 290 318

VAT output payables and VAT input receivables are shown in note 6.

All VAT returns have been submitted by the due date throughout the year.

54



42. Additional disclosure in terms of Municipal Finance Management Act (continued)

Councillors' arrear consumer accounts

The following Councillors had arrear accounts outstanding for more than 90 days at 30 June 2015:

30 June 2015 Outstandingless than 90

daysR

Outstandingmore than 90

daysR

TotalR

Majeng, J 673 2 871 3 544Mampheko, AM 836 5 962 6 798Motsepe, RH 401 24 121 24 522Rammushi, JP 1 680 3 705 5 385Sekonya, MD 117 - 117Sindane, JM 1 140 15 251 16 391

4 847 51 910 56 757

30 June 2014 Outstandingless than 90

daysR

Outstandingmore than 90

daysR

TotalR

Baloyi, RW 121 - 121Sesoko, AM 117 - 117Majeng, J 1 978 3 394 5 372Mampheko, AM 126 3 689 3 815Motsepe, RH 766 18 657 19 423Rammushi, JP 696 929 1 625Sindane, JM 1 426 11 878 13 304

5 230 38 547 43 777

Supply chain management regulations

In terms of section 36 of the Municipal Supply Chain Management Regulations any deviation from the Supply ChainManagement Policy needs to be approved/condoned by the Board of Directors. The expenses incurred as listed hereunderhave been condoned.

IncidentEmergency pipeline repairs - 1 155 632Repair to Roof leaks cause by heavy rains 14 320 -Repair to damaged burglar door at cash point 2 508 -Pesticide treatment and fumigation at our offices after snake spat spat at our client 27 992 -Supply of Caseware: Sole Suppliers 44 248 46 180Computer Repairs by Manufacturer 3 011 -Disability Assessment for Employees who were experiencing seizures at work 9 000 -Variation order for repairing a branding of vehicles 18 582 -Variation order for additional cabling for generator 41 200 -Repair to a house for damages caused by an overflow of reservoir 33 520 -Various Emergencies at WWTW 140 143 -WWTW: Various repairs and maintenance at WWTW 293 257 -

627 781 1 201 812

43. Material Losses

Non Revenue WaterNon Revenue Water 33 247 066 28 361 236

55



43. Material Losses (continued)

The entity suffered significant water loss of 4 969 666 kilolitres (2014: 4 664 677 kilolitres) with a net value of R 33 247 066(2014: R28 361 236) . The losses can further be broken down between technical and non-technical losses. The technicallosses incurred in the current year was 1 987 8667 kilolitres (2014: 1 865 871 kilolitres) with net value of R 13 298 824(2014: R11 344 496). The non-technical losses incurred in the current year was 2 981 780 kilolitres (2014: 2 798 806 kilolitres) witha net value of R 19 948 242 (2014: R 17 016 740).

Water is supplied to the ODI service delivery area from Rand Water through three bulk supply pipelines by the means ofgravity flow . Monthly meter readings of supply are used to monitor the total gross supply and monthly meter readings ofwater exported to the neighbouring municipalities are used to calculate the net water input into the ODI areas.

Water loss management in the ODI area of supply is monitored, managed and controlled by the implementation of theWater.Conservation and Water Demand Management strategies. The primary outcome of these strategies is to reduce:1. Technical Losses (where not all water supplied reaches the consumer)2. Financial Losses (where not all water reaching the consumer is measured and paid for)

These losses are caused by:(a) Real Losses (physical loss of water from the system) and(b) Apparent Losses (losses due to meter inaccuracies, meter estimations, non-metering of water and unauthorizedconsumption).

From the above, water losses in the ODI is determined by calculating the amount of Non-Revenue Water (NRW) which isthedifference of the volume of water supplied into the system and the billed consumption.

Activities undertaken by the ODI Management involve the continuous investigation into various factors leading to water loss,and the implementation of various initiatives to assist with the reduction of non-revenue water.The initiatives included the following:1 Network analysis of existing systems2 Monitoring and logging of pressures and flows3 Engineering investigations in problematic areas4 Pressure management: Installation and setting of PRV’s5 Domestic and commercial meter audits and meter replacements6 Active leak detection by locating water leaks using various methods and equipment7 Continuous meter audits8 Monitoring the reservoir9 Monitoring housing developments & Capital projects10 Data cleansing exercises are also undertaken to preserve the integrity of the data

44. Budget differences

Material differences between budget and actual amounts

56



44. Budget differences (continued)

Statement of Financial Performance

Revenue and Other Income:

The water revenue and sanitation was overbilled due to increase in consumption by consumers. The service charges otherwere unbilled. These mainly related to Waste Water Treatment Works.

The Operational Losses subsidy to only billed every month up to levels of actual losses incurred whilst more interest wasearned on the call account investment.

Expenditures:

Declining revenue collections resulted in excess spending of debtors impairment. This declining collection levels furtherresulted in underspening in general expenditures due to reprioritisation in spending in order to manage the cashflows.

During the current year there was a underspending in Personnel costs as some positions were only filled out late during theyear and some key positions still remained vacant.

The bulk water purchases exceeded the budgeted amount by R 22 million due to an increase in demand, however, thisexcess did not result in sales. The Water revenue exceeded the budgeted amount by R 9.8 million. This bulk waterpurchases excess resulted in non revenue water.

Debt impairment was overspent due to declining collection levels. Turnaround strategy has been developed by the board ofdirectors.

There is an overspending in board fees due to two additional special meetings held during the year to deal with the mattersrelating to the disciplinary process of the suspended CEO. In addition, the Chairperson of the Board is an invitee to theAudit and Performance Committee meetings.

The depreciation and amortisation costs were below budget due to the underspending in property, plant and equipment asa result of reprioritisation in spending in order to manage the cashflows.

Statement of Financial Position

Assets:

The excess in cash and cash equivalents is due to operational losses subsidy received from the City of Tshwane. Due todeclining collection levels and an increase in debtors impairment, there was an increase in other debtors as a result of theamount billed to CTMM for the operational lossess subsidy. This actual amount exceeded the budgeted amount by R 102million.

Liabilities:

The liabilities are over budgted due to declining collection levels. CTMM still remains the major creditor for SWA.

Cashflow Statement

The material differences exists due to declining revenue collection levels and repriritisation in spending levels to bettermanage the cash flow.

57


Detailed Income statementFigures in Rand Note(s) 2015 2014

Revenue

Water Revenue 191 827 986 159 945 340

Other income 6 646 305 4 020 960

Conditional Grant Income - 16 975

Interest received - investment 36 624 150 27 891 443

Government grants & subsidies 234 340 599 201 518 285

Total revenue 469 439 040 393 393 003

Expenditure

Personnel 22 (85 891 521) (84 285 454)

Depreciation and amortisation (1 732 029) (1 701 541)

Debt impairment 23 (128 180 077) (95 408 282)

Collection costs (9 221) (65 331)

General Expenses 20 (252 530 174) (216 853 152)

Total expenditure (468 343 022) (398 313 760)

Loss on disposal of assets and liabilities (19 993) -

Surplus (deficit) for the year 1 076 025 (4 920 757)

58The supplementary information presented does not form part of the audited financial statements and is unaudited

0

Appendix G3Budgeted Financial Performance (revenue and expenditure)for the year ended 30 June 2015

2015/2014 2014/2013

Original Budget BudgetAdjustments(i.t.o. s28 and

s31 of theMFMA)

Finaladjustments

budget

Shifting offunds (i.t.o.s31 of the

MFMA)

Virement(i.t.o. Council

approvedpolicy)

Final Budget ActualOutcome

Unauthorisedexpenditure

Variance ofActual

Outcomeagainst

AdjustmentsBudget

ActualOutcome as %

of FinalBudget

ActualOutcome as %

of OriginalBudget

Reportedunauthorisedexpenditure

Expenditureauthorised in

terms ofsection 32 of

MFMA

Balance to berecovered

RestatedAudited

Outcome

Rand Rand Rand Rand Rand Rand Rand Rand Rand Rand Rand Rand Rand Rand Rand

Revenue By Source

Property rates - - - - - - - %DIV/0 %DIV/0 -Property rates - penalties & collectioncharges

- - - - - - - %DIV/0 %DIV/0 -

Service charges - electricity revenue - - - - - - - %DIV/0 %DIV/0 -Service charges - water revenue 186 526 568 - 186 526 568 - 186 526 568 193 944 631 7 418 063 %104 %104 150 834 999Service charges - sanitation revenue 50 590 037 - 50 590 037 - 50 590 037 52 028 695 1 438 658 %103 %103 43 323 682Service charges - refuse revenue - - - - - - - %DIV/0 %DIV/0 -Service charges - other 48 833 280 - 48 833 280 - 48 833 280 41 014 889 (7 818 391) %84 %84 41 931 646Rental of facilities and equipment - - - - - - - %DIV/0 %DIV/0 -Interest earned - external investments - 202 682 202 682 - 202 682 830 813 628 131 %410 %DIV/0 417 474Interest earned - outstanding debtors 29 972 360 (202 682) 29 769 678 - 29 769 678 35 793 337 6 023 659 %120 %119 27 473 969Dividends received - - - - - - - %DIV/0 %DIV/0 -Fines - - - - - - - %DIV/0 %DIV/0 -Licences and permits - - - - - - - %DIV/0 %DIV/0 -Agency services - - - - - - - %DIV/0 %DIV/0 -Transfers recognised - operational - 172 940 098 172 940 098 - 172 940 098 202 063 230 29 123 132 %117 %DIV/0 -Other revenue 172 940 098 (172 940 098) - - - - - %DIV/0 %- 168 015 909Gains on disposal of PPE - - - - - - - %DIV/0 %DIV/0 -

Total Revenue (excluding capitaltransfers and contributions)

488 862 343 - 488 862 343 - 488 862 343 525 675 595 36 813 252 %108 %108 431 997 679

Page 59

Appendix G3Budgeted Financial Performance (revenue and expenditure)for the year ended 30 June 2015

2015/2014 2014/2013

Original Budget BudgetAdjustments(i.t.o. s28 and

s31 of theMFMA)

Finaladjustments

budget

Shifting offunds (i.t.o.s31 of the

MFMA)

Virement(i.t.o. Council

approvedpolicy)


Unauthorisedexpenditure

Variance ofActual

Outcomeagainst

AdjustmentsBudget

ActualOutcome as %

of FinalBudget

ActualOutcome as %

of OriginalBudget

Reportedunauthorisedexpenditure

Expenditureauthorised in

terms ofsection 32 of

MFMA

Balance to berecovered

RestatedAudited

Outcome

Rand Rand Rand Rand Rand Rand Rand Rand Rand Rand Rand Rand Rand Rand Rand

Expenditure By Type

Employee related costs 94 193 202 - 94 193 202 - - 94 193 202 84 933 166 - (9 260 036) %90 %90 - - - 83 335 786Remuneration of directors 678 216 - 678 216 - - 678 216 773 845 - 95 629 %114 %114 - - - 444 192Debt impairment 85 084 036 - 85 084 036 - 85 084 036 128 180 077 - 43 096 041 %151 %151 - - - 95 408 282Depreciation & asset impairment 2 459 382 - 2 459 382 - 2 459 382 1 732 030 - (727 352) %70 %70 - - - 1 701 541Collection costs 5 842 587 - 5 842 587 - - 5 842 587 4 436 496 - (1 406 091) %76 %76 - - - -Bulk purchases 145 909 056 - 145 909 056 - - 145 909 056 167 838 325 - 21 929 269 %115 %115 - - - 132 104 670Other materials - - - - - - - - - %DIV/0 %DIV/0 - - - -Contracted services - - - - - - - - - %DIV/0 %DIV/0 - - - -Transfers and grants - - - - - - - - - %DIV/0 %DIV/0 - - - -Other expenditure 154 695 864 - 154 695 864 - - 154 695 864 136 685 710 - (18 010 154) %88 %88 - - - 123 923 965Loss on disposal of PPE - - - - - - 19 993 - 19 993 %DIV/0 %DIV/0 - - - -

Total Expenditure 488 862 343 - 488 862 343 - - 488 862 343 524 599 642 - 35 737 299 %107 %107 - - - 436 918 436

Surplus/(Deficit) - - - - - 1 075 953 1 075 953 %DIV/0 %DIV/0 (4 920 757)

Transfers recognised - capital - - - - - - - %DIV/0 %DIV/0 -Contributions recognised - capital - - - - - - - %DIV/0 %DIV/0 -Contributed assets - - - - - - - %DIV/0 %DIV/0 -

Surplus/(Deficit) after capitaltransfers & contributions

- - - - - 1 075 953 1 075 953 %DIV/0 %DIV/0 (4 920 757)

Taxation - - - - - - - %DIV/0 %DIV/0 -

Surplus/(Deficit) after taxation - - - - - 1 075 953 1 075 953 %DIV/0 %DIV/0 (4 920 757)

Attributable to minorities - - - - - - - %DIV/0 %DIV/0 -

Surplus/(Deficit) attributable tomunicipality

- - - - - 1 075 953 1 075 953 %DIV/0 %DIV/0 (4 920 757)

Share of surplus/ (deficit) of associate - - - - - - - %DIV/0 %DIV/0 -

Surplus/(Deficit) for the year - - - - - 1 075 953 1 075 953 %DIV/0 %DIV/0 (4 920 757)

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Appendix G5Budgeted Cash Flowsfor the year ended 30 June 2015

2015/2014 2014

OriginalBudget

BudgetAdjustments(i.t.o. s28 and

s31 of theMFMA)

Finaladjustments

budget


Variance ofActual

Outcomeagainst

AdjustmentsBudget

ActualOutcome as %

of FinalBudget

ActualOutcome as %

of OriginalBudget

RestatedAudited

Outcome

Rand Rand Rand Rand Rand Rand Rand Rand Rand

Cash flow from operating activities

ReceiptsRatepayers and other (InclGovernment Grants)

409 358 944 - 409 358 944 409 358 944 290 120 377 (119 238 567) %71 %71 418 149 283

Government - operating - - - - - - %DIV/0 %DIV/0 -Government - capital - - - - - - %DIV/0 %DIV/0 -Interest 29 972 360 - 29 972 360 29 972 360 14 623 765 (15 348 595) %49 %49 27 891 444Dividends - - - - - - %DIV/0 %DIV/0 -PaymentsSuppliers and employees (444 491 322) - (444 491 322) (444 491 322) (295 579 672) 148 911 650 %66 %66 403 050 723Finance charges - - - - - - %DIV/0 %DIV/0 -Transfers and Grants - - - - - - %DIV/0 %DIV/0 -

Net cash flow from/used operatingactivities

(5 160 018) - (5 160 018) (5 160 018) 9 164 470 14 324 488 %(178) %(178) 849 091 450

Cash flow from investing activities

ReceiptsProceeds on disposal of PPE - - - - - - %DIV/0 %DIV/0 -Decrease (Increase) in non-currentdebtors

- - - - - - %DIV/0 %DIV/0 -

Decrease (increase) other non-currentreceivables

- - - - - - %DIV/0 %DIV/0 -

Decrease (increase) in non-currentinvestments

- - - - - - %DIV/0 %DIV/0 -

PaymentsCapital assets (2 000 000) - (2 000 000) (2 000 000) (776 239) 1 223 761 %39 %39 -

Net cash flow from/used investingactivities

(2 000 000) - (2 000 000) (2 000 000) (776 239) 1 223 761 %39 %39 -

Cash flow from financing activities

ReceiptsShort term loans - - - - - - %DIV/0 %DIV/0 -Borrowing long term/refinancing - - - - - - %DIV/0 %DIV/0 162 946Increase (decrease) in consumerdeposits

200 000 - 200 000 200 000 - (200 000) %- %- 231 986

PaymentsRepayment of borrowing - - - - - - %DIV/0 %DIV/0 -

Net cash flow from/used financingactivities

200 000 - 200 000 200 000 - (200 000) %- %- 394 932

Net increase/(decrease) in cash held (6 960 018) - (6 960 018) (6 960 018) 8 388 231 15 348 249 %(121) %(121) 849 486 382Cash/cash equivalents at the yearbegin:

13 891 132 12 123 433

Cash/cash equivalents at the yearend:

(6 960 018) - (6 960 018) (6 960 018) 22 279 363 15 348 249 %(320) %(320)

Page 61

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