fetakgomo local municipality annual financial ......net increase/(decrease) in cash and cash...

FETAKGOMO LOCAL MUNICIPALITYAnnual Financial Statements

for the year ended June 30, 2014

FETAKGOMO LOCAL MUNICIPALITYAnnual Financial Statements for the year ended June 30, 2014

General Information

Legal form of entity Municipality

Nature of business and principal activities Service Delivery

Members of the Council Councillors and Traditional Leaders

Sefala RE (Mayor)

Mamphekgo KK(Speaker)

Makola MM (Chief Whip)

Lentsoane SA (EXCO Member of Development Planning )

Maisela PR(EXCO Member of Technical Services)

Phaladi RC (EXCO Member of Budget & Treasury )

Seroka KA (EXCO Member of Corporate & Community Services )

Diphofa KD (Chairperson of Technical Services Portfolio Committee)

Kupa TM(Chairperson of Budget & Treasury Services Portfolio Committee)

Phala MD(Chairperson of Development Planning Portfolio Committee)

Mashabela MN(Chairperson of Community Services Portfolio Committee)

Mathipa MH(Chairperson of Remuneration Committee)

Marote TE(Chairperson of Chairperson)

Mabotha MC(Chairperson of Rules and Ethics Committee)

Moifo HK

Mawela VT

Manala ER

Mosoana MD

Maesela MG

Maboa S

Kgoshi Phahlamohlaka K.P

Kgoshi Nchabeleng M.K

Kgoshigadi Seroka T.M

Kgoshigadi Maisela RM

Kgoshigadi Nchabeleng M

Grading of local authority 2

Municipal Manager Matumane N.D

Chief Financial Officer Maredi MF

Registered office Stand No. 1 Mashung

Ga-Nkoana

Apel

Business address Stand No. 1 Mashung

Ga-Nkoana

Apel

Postal address PO Box 818

Ga-Nkoana

Apel

0739

Attorneys Rachoene and Associates

Sydwel Rachoene

Preparer The annual financial statements were independently compiled by:

SizweNtsalubaGobodo Incorporated

Chartered Accountants (SA)

1


General Information

Name and Contact Delails of Auditor: Thabo Mogano

[email protected]

015 299 4435

Name and Contact Details of Provincial Treasury: Ntuli PS

[email protected]

015 291 8400

Name and Contact Details of National Treasury: Sifiso Mabaso

[email protected]

012 315 5792

2


Index

Index Page

Statement of Financial Position 5

Statement of Changes in Net Assets 7

Statement of Financial Performance 6

Cash Flow Statement 8

Statement of Comparison of Budget and Actual Amounts 9

Appropriation Statement 10 - 11

Notes to the Annual Financial Statements 26 - 45

Appendix G(3): Budgeted Financial Performance (revenue and expenditure) 46

3


Approval of Annual Financial Statements

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

I am responsible for the preparation of these annual financial statements, which are set out on pages 5 to 45 in terms of Section 126(1) of theMunicipal Finance Management Act and which I have signed on behalf of the Municipality.

I certify that the salaries, allowances and benefits of Councillors or management, loans made to Councilors or management, if any, and paymentsmade to Councillors for loss of office, if any, as disclosed in note 27 of these annual financial statements are within the upper limits of theframework envisaged in Section 219 of the Constitution, read with the Remuneration of Public Officer Bearers Act and the Minister ofCooperative Governance and Traditional Affairs' determination in accordance with this Act and remuneration framework for section 56/57 asapproved by the Fetakgomo Municipal Council."

Municipal Manager Matumane N.D

Friday, August 29, 2014

4


Statement of Financial Position as at June 30, 20142014 2013

Restated*Note(s) R R

Assets

Current Assets

Inventory 10 334,100 109,618

Receivables from exchange transactions 11 231,851 206,103

Receivables from non-exchange transactions 12 1,650,460 997,194

VAT receivable 13 2,402,778 2,333,110

Receivables 14 5,506,853 640,406

Cash and cash equivalents 15 15,488,957 16,138,616

25,614,999 20,425,047

Non-Current Assets

Investment property 6 3,378,504 6,579,091

Property, plant and equipment 7 103,399,201 87,941,767

Heritage assets 8 105,000 105,000

106,882,705 94,625,858

Total Assets 132,497,704 115,050,905

Liabilities

Current Liabilities

Finance lease obligation 16 174,560 44,388

Payables from exchange transactions 19 8,556,424 5,479,108

Unspent conditional grants and receipts 17 9,289,173 7,386,565

Provisions 18 346,579 51,379

Bank overdraft 15 - 156,037

18,366,736 13,117,477

Non-Current Liabilities

Finance lease obligation 16 293,797 10,635

Long term service obligation 9 497,020 412,895

790,817 423,530

Total Liabilities 19,157,553 13,541,007

Net Assets 113,340,151 101,509,898

Net Assets

Accumulated surplus 113,340,151 101,509,898

* See Note 39

5


Statement of Financial Performance2014 2013


Revenue

Service charges 22 3,900,496 2,340,535

Rental of facilities and equipment 21 146,609 213,456

Public contributions and donations 24 187,317 -

Property rates - penalties imposed 317,166 113,423

Property rates 21 7,685,709 2,249,209

Other income 25 352,177 526,780

Licences and permits 1,765,589 1,721,886

Interest received - investment 1,191,329 729,251

Income from agency services 321,488 254,318

Government grants & subsidies 23 74,504,098 66,075,436

Fines 1,129,443 688,650

Total revenue 91,501,421 74,912,944

Expenditure

Employee related cost 27 (30,934,269) (27,310,864)

Remuneration of councillors 28 (8,106,371) (7,011,301)

Depreciation and amortisation 31 (5,011,130) (4,079,585)

Impairment loss 32 (1,916,583) (249,010)

Finance costs 33 (19,817) (12,115)

Debt impairment 29 (6,435,069) (7,227,730)

Repairs and maintenance (673,307) (869,153)

Grants and subsidies paid 35 (2,641,403) (1,759,432)

General expenses 26 (20,940,827) (17,513,930)

Total expenditure (76,678,776) (66,033,120)

Operating surplus 14,822,645 8,879,824

Surplus for the year 14,822,645 8,879,824

* See Note 39

6


Statement of Changes in Net AssetsAccumulated

surplusTotal net assets

R R

Balance at July 01, 2012 90,644,415 90,644,415

Surplus for the year 8,879,824 8,879,824

Total changes 8,879,824 8,879,824

Opening balance after surplus restatement 99,524,239 99,524,239AdjustmentsCorrection of prior year errors 1,985,659 1,985,659

Restated* Balance at July 01, 2013 as restated* 101,509,898 101,509,898

Surplus for the year 14,822,645 14,822,645Restated prior period error (2,992,392) (2,992,392)

Total changes 11,830,253 11,830,253

Balance at June 30, 2014 113,340,151 113,340,151

* See Note 39

7


Cash Flow Statement2014 2013


Cash flows from operating activities

Receipts

Rates and taxes 714,773 239,052

Sale of goods and services 2,104,701 1,516,739

Grants 76,406,706 68,714,059

Interest income 1,191,329 729,251

Other receipts 352,177 267,294

Fines 476,177 684,035

81,245,863 72,150,430

Payments

Employee and councillors related cost (38,956,515) (33,933,613)

Suppliers (20,989,847) (19,943,159)

Finance costs (19,817) (12,115)

(59,966,179) (53,888,887)

Net cash flows from operating activities 36 21,279,684 18,261,543

Cash flows from investing activities

Purchase of property, plant and equipment 7 (21,661,215) (16,335,950)

Cash flows from financing activities

Finance lease payments (112,091) (74,715)

Net increase/(decrease) in cash and cash equivalents (493,622) 1,850,878

Cash and cash equivalents at the beginning of the year 15,982,579 14,131,701

Cash and cash equivalents at the end of the year 15 15,488,957 15,982,579

* See Note 39

8


Statement of Comparison of Budget and Actual AmountsBudget on Cash Basis

Approvedbudget

Adjustments Final Budget Actual amountson comparable

basis

Differencebetween finalbudget and

actual

Reference

R R R R R

Statement of Financial Performance

Revenue

Revenue from exchangetransactions

Service charges 5,157,140 (1,634,140) 3,523,000 3,900,496 377,496

Rental of facilities and equipment 263,490 (263,490) - 146,609 146,609

Interest received 69,960 (69,960) - - -

Income from agency services 450,000 (450,000) - 321,488 321,488

Licences and permits 1,800,000 (1,800,000) - 1,765,589 1,765,589

Other income - (rollup) 286,000 (286,000) - 352,177 352,177

Interest received - investment 1,450,000 (560,000) 890,000 1,191,329 301,329

Total revenue from exchangetransactions

9,476,590 (5,063,590) 4,413,000 7,677,688 3,264,688

Revenue from non-exchangetransactions

Taxation revenue

Property rates 4,021,200 4,078,800 8,100,000 7,685,709 (414,291)

Property rates - penalties imposed 100,000 - 100,000 317,166 217,166

Government grants & subsidies 57,379,400 212,708 57,592,108 74,504,098 16,911,990

Transfer revenue

Public contributions and donations 212,708 - 212,708 187,317 (25,391)

Fines 500,000 - 500,000 1,129,443 629,443

Total revenue from non-exchangetransactions

62,213,308 4,291,508 66,504,816 83,823,733 17,318,917

Total revenue 71,689,898 (772,082) 70,917,816 91,501,421 20,583,605

Expenditure

Personnel (33,280,344) - (33,280,344) (30,934,269) 2,346,075

Remuneration of councillors (8,109,806) - (8,109,806) (8,106,371) 3,435

Depreciation and amortisation (3,269,850) - (3,269,850) (5,011,130) (1,741,280)

Impairment loss/ Reversal ofimpairments

- - - (1,916,583) (1,916,583)

Finance costs (10,500) - (10,500) (19,817) (9,317)

Debt impairment (9,256,000) - (9,256,000) (6,435,069) 2,820,931

Repairs and maintenance (1,166,850) - (1,166,850) (673,307) 493,543

Grants and subsidies paid (2,640,000) - (2,640,000) (2,641,403) (1,403)

General Expenses (21,696,921) - (21,696,921) (20,940,827) 756,094

Total expenditure (79,430,271) - (79,430,271) (76,678,776) 2,751,495

Operating surplus (7,740,373) (772,082) (8,512,455) 14,822,645 23,335,100

Gain on disposal of assets andliabilities

2,000 (2,000) - - -

Surplus before taxation (7,738,373) (774,082) (8,512,455) 14,822,645 23,335,100

Actual Amount on ComparableBasis as Presented in the Budgetand Actual Comparative Statement

(7,738,373) (774,082) (8,512,455) 14,822,645 23,335,100

9


Appropriation Statement

Original budget Budgetadjustments(i.t.o. s28 ands31 of theMFMA)

Finaladjustmentsbudget

Shifting offunds (i.t.o. s31of the MFMA)

Virement (i.t.o.councilapprovedpolicy)

Final budget Actual outcome Unauthorisedexpenditure

Variance Actualoutcome as% of finalbudget

Actualoutcome as% oforiginalbudget

R R R R R R R R R R R

2014

Financial PerformanceProperty rates 4,021,200 4,078,800 8,100,000 - 8,100,000 8,002,875 (97,125) %99 %199Service charges 5,157,140 (1,634,140) 3,523,000 - 3,523,000 3,900,496 377,496 %111 %76Investment revenue 1,450,000 (560,000) 890,000 - 890,000 1,191,329 301,329 %134 %82Transfers recognised -operational

57,379,400 212,708 57,592,108 - 57,592,108 57,298,254 (293,854) %99 %100

Other own revenue 4,168,450 1,540,000 5,708,450 - 5,708,450 3,715,306 (1,993,144) %65 %89

Total revenue (excludingcapital transfers andcontributions)

72,176,190 3,637,368 75,813,558 - 75,813,558 74,108,260 (1,705,298) %98 %103

Employee costs (34,351,952) 1,067,857 (33,284,095) - 266,577 (33,017,518) (30,934,269) - 2,083,249 %94 %90Remuneration of councillors (7,356,706) (785,000) (8,141,706) - (43,100) (8,184,806) (8,106,371) - 78,435 %99 %110Debt impairment (6,288,000) (2,968,000) (9,256,000) (9,256,000) (6,435,069) - 2,820,931 %70 %102Depreciation and assetimpairment

(3,269,850) - (3,269,850) (3,269,850) (6,927,713) - (3,657,863) %212 %212

Finance charges (89,250) - (89,250) - - (89,250) (19,817) - 69,433 %22 %22Transfers and grants - - - - - - (2,641,403) - (2,641,403) %DIV/0 %DIV/0Other expenditure (25,743,420) (25,950) (25,769,370) - 156,523 (25,612,847) (21,614,134) - 3,998,713 %84 %84

Total expenditure (77,099,178) (2,711,093) (79,810,271) - 380,000 (79,430,271) (76,678,776) - 2,751,495 %97 %99

Surplus/(Deficit) (4,922,988) 926,275 (3,996,713) - (3,616,713) (2,570,516) 1,046,197 %71 %52

10


Appropriation Statement

Original budget Budgetadjustments(i.t.o. s28 ands31 of theMFMA)

Finaladjustmentsbudget

Shifting offunds (i.t.o. s31of the MFMA)

Virement (i.t.o.councilapprovedpolicy)

Final budget Actual outcome Unauthorisedexpenditure

Variance Actualoutcome as% of finalbudget

Actualoutcome as% oforiginalbudget

R R R R R R R R R R R

Transfers recognised - capital 19,041,600 (19,041,600) - - - 17,205,844 17,205,844 %DIV/0 %90Contributions recognised -capital and contributed assets

212,708 (212,708) - - - 187,317 187,317 %DIV/0 %88

Surplus (Deficit) aftercapital transfers andcontributions

14,331,320 (18,328,033) (3,996,713) - (3,616,713) 14,822,645 18,439,358 %(410) %103

Surplus/(Deficit) for theyear

14,331,320 (18,328,033) (3,996,713) - (3,616,713) 14,822,645 18,439,358 %(410) %103

11


Accounting Policies

1. Presentation of Annual Financial Statements

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

These annual financial statements have been prepared on an accrual basis of accounting and are in accordance with historical cost convention asthe basis of measurement, unless specified otherwise.

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

These accounting policies are consistent with the previous period.

1.1 Presentation currency

These annual financial statements are presented in South African Rand, which is the functional currency of the municipality.

1.2 Significant judgements and sources of estimation uncertainty

These annual financial statements have been prepared on a going concern basis.

In preparing the annual financial statements to conform with the standards of GRAP, management is required to make estimates, judgements andassumptions that affect the amounts represented in the annual 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 may differ from these estimates.

All significant estimates, judgements and underlying assumptions are reviewed on a constant basis. All necessary revisions of significantestimates are recognised in the period during such revisions as well as in any future affected periods.

Allowance for slow moving, damaged and obsolete stock

In determining the allowance for stock to write stock down to the lower of cost or net realisable value,management have made estimates of theselling price and direct cost to sell on certain inventory.

Impairment testing

The recoverable amounts of cash-generating units and individual assets have been determined based on the higher of value-in-use calculationsand fair values less costs to sell. These calculations require the use of estimates and assumptions.

The municipality reviews and tests the carrying value of assets when events or changes in circumstances suggest that the carrying amount maynot be recoverable. Assets are grouped at the lowest level for which identifiable cash flows are largely independent of cash flows of other assetsand liabilities. If there are indications that impairment may have occurred, estimates are prepared of expected future cash flows for each group ofassets. Expected future cash flows used to determine the value in use of tangible assets are inherently uncertain and could materially change overtime.

Provisions

Provisions were raised and management determined an estimate based on the information available.

Long service awards

The present value of the post retirement obligation depends on a number of factors that are determined on an actuarial basis using a number ofassumptions. The assumptions used in determining the net cost (income) include the discount rate. Any changes in these assumptions will impacton the carrying amount of post retirement obligations.

The municipality determines the appropriate discount rate at the end of each year. This is the interest rate that should be used to determine thepresent value of estimated future cash outflows expected to be required to settle the long service awards obligations. In determining theappropriate discount rate, the municipality considers the interest rates of high-quality government bonds that are denominated in the currency inwhich the benefits will be paid, and that have terms to maturity approximating the terms of the related long service liability.

.

Effective interest rate

The municipality used the prime interest rate to discount future cash flows.

Allowance for impairment

12


Accounting Policies

1.2 Significant judgements and sources of estimation uncertainty (continued)

On receivables an impairment loss is recognised in surplus and deficit when there is objective evidence that it is impaired. The impairment ismeasured as the difference between the receivables carrying amount and the present value of estimated future cash flows discounted at theeffective interest rate, computed at initial recognition.

1.3 Investment property

Investment property is property (land or a building - or part of a building - or both) held to earn rentals or for capital appreciation or both, ratherthan for:

use in the production or supply of goods or services or for administrative purposes, or sale in the ordinary course of operations.

Owner-occupied property is property held for use in the production or supply of goods or services or for administrative purposes.

Investment property is recognised as an asset when, it is probable that the future economic benefits or service potential that are associated withthe investment property will flow to the municipality, and the cost or fair value of the investment property can be measured reliably.

Investment property is initially recognised at cost. Transaction costs are included in the initial measurement.

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

Costs include costs incurred initially and costs incurred subsequently to add to, or to replace a part of, or service a property. If a replacement partis recognised in the carrying amount of the investment property, the carrying amount of the replaced part is derecognised.

Fair value

Subsequent to initial measurement investment property is measured at fair value.

The fair value of investment property reflects market conditions at the reporting date.

A gain or loss arising from a change in fair value is included in net surplus or deficit for the period in which it arises.

1.4 Property, plant and equipment

Property, plant and equipment are tangible non-current assets (including infrastructure assets) that are held for use in the production orsupply of goods or services, rental to others, or for administrative purposes, and are expected to be used during more than one 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 municipality; and the cost 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 the location andcondition necessary for it to be capable of operating in the manner intended by management. Trade discounts and rebates are deducted inarriving 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 monetary assets, or a combination ofmonetary and non-monetary assets, the asset acquired is initially measured at fair value (the cost). If the acquired item's fair value was notdeterminable, 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 for as 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 incurred subsequently to addto, replace part of, or service it. If a replacement cost is recognised in the carrying amount of an item of property, plant and equipment, thecarrying 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 also included in the costof property, plant and equipment, where the entity is obligated to incur such expenditure, and where the obligation arises as a result ofacquiring the asset or using it for purposes other than the production of inventories.

13


Accounting Policies

1.4 Property, plant and equipment (continued)

Recognition of costs in the carrying amount of an item of property, plant and equipment ceases when the item is in the location and conditionnecessary 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 andequipment. In addition, spare parts and stand by equipment which can only be used in connection with an item of property, plant andequipment 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 the recognitioncriteria above are included as a replacement in the cost of the item of property, plant and equipment. Any remaining inspection costs from theprevious inspection are derecognised.

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

Subsequent expenditure is capitalised when the recognition and measurement crieteria of an asset is met. If the expenditure merley restoresthe original best estimate of the expected useful life of the asset, then it is regarded as repairs and maintenance and is expensed.

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

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

Item Average useful life in yearsLand IndefiniteBuildings Caravan 5-10 Shelter 10-15 Civic theatres 25-30Electricity Transformers 25-50 Electrical panels 3-5 Lines-underground 25-45Roads(Roads,Pavements,Bridges & Storm Water) Vehicle Bridge -Concrete Municipal roads-Asphalt surface 10-20 Asphalt layer 30-50Furniture and Office Equipment Advertising boards 3-5 Air conditioners(individual & portable) 3-5 Cutlery and crokery 5-10Transport Assets Motor vehicles 4-7 Trailers and accessories 5-10 Trucks 5-7Computer Equipment Computer hardware including operating systems 3-5 Networks 5-10Other Machinery and Equipment Audio equipment 5-10 Building air conditioning systems 5-10 Domestic equipment(non kitchen appliances) 3-5

The residual value, and the useful life and depreciation method of each asset are reviewed at the end 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 unless expectations differfrom 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 is depreciatedseparately.

14


Accounting Policies

1.4 Property, plant and equipment (continued)

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

Items of property, plant and equipment are derecognised when the asset is disposed of or when there are no further economic benefits orservice potential expected from the use 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 when the item isderecognised. The gain or loss arising from the derecognition of an item of property, plant and equipment is determined as the differencebetween the net disposal proceeds, if any, and the carrying amount of the item.

Assets which the municipality holds for rentals to others and subsequently routinely sell as part of the ordinary course of activities, aretransferred to inventories when the rentals end and the assets are available-for-sale. These assets are not accounted for as non-current assetsheld for sale. Proceeds from sales of these assets are recognised as revenue. All cash flows on these assets are included in cash flows fromoperating activities in the cash flow statement.

1.5 Heritage assets

Heritage assets are assets that have a cultural, environmental, historical, natural, scientific, technological or artistic significance and are heldindefinitely for the benefit of present and future generations.

Recognition

The municipality recognises a heritage asset as an asset if it is probable that future economic benefits or service potential associated with theasset will flow to the municipality, and the cost or fair value of the asset can be measured reliably.

Initial measurement

Heritage assets are measured at cost.

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

Subsequent measurement

After recognition as an asset, a class of heritage assets is carried at its cost less any accumulated impairment losses.

Impairment

The municipality assesses at each reporting date whether there is an indication that it may be impaired. If any such indication exists, themunicipality estimates the recoverable amount or the recoverable service amount of the heritage asset.

Transfers

Transfers from heritage assets are only made when the particular asset no longer meets the definition of a heritage asset.

Transfers to heritage assets are only made when the asset meets the definition of a heritage asset.

Derecognition

The municipality derecognises heritage asset on disposal, or when no future economic benefits or service potential are expected from its use ordisposal.

The gain or loss arising from the derecognition of a heritage asset is determined as the difference between the net disposal proceeds, if any, andthe carrying amount of the heritage asset. Such difference is recognised in surplus or deficit when the heritage asset is derecognised.

1.6 Financial instruments

A financial instrument is any contract that gives rise to a financial asset of one entity and a financial liability or a residual interest of anotherentity.

15


Accounting Policies

1.6 Financial instruments (continued)

The amortised cost of a financial asset or financial liability is the amount at which the financial asset or financial liability is measured at initialrecognition minus principal repayments, plus or minus the cumulative amortisation using the effective interest method of any difference betweenthat initial amount and the maturity amount, and minus any reduction (directly or through the use of an allowance account) for impairment oruncollectibility.

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

The effective interest method is a method of calculating the amortised cost of a financial asset or a financial liability (or group of financial assetsor financial liabilities) and of allocating the interest income or interest expense over the relevant period. The effective interest rate is the rate thatexactly discounts estimated future cash payments or receipts through the expected life of the financial instrument or, when appropriate, a shorterperiod to the net carrying amount of the financial asset or financial liability. When calculating the effective interest rate, an municipality shallestimate cash flows considering all contractual terms of the financial instrument (for example, prepayment, call and similar options) but shall notconsider future credit losses. The calculation includes all fees and points paid or received between parties to the contract that are an integral partof the effective interest rate (see the Standard of GRAP on Revenue from Exchange Transactions), transaction costs, and all other premiums ordiscounts. There is a presumption that the cash flows and the expected life of a group of similar financial instruments can be estimated reliably.However, in those rare cases when it is not possible to reliably estimate the cash flows or the expected life of a financial instrument (or group offinancial instruments), the municipality shall use the contractual cash flows over the full contractual term of the financial instrument (or group offinancial instruments).

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

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 potentially favourable to themunicipality.

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 municipality.

Interest rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market interestrates.

Liquidity risk is the risk encountered by an municipality in the event of difficulty in meeting obligations associated with financial liabilities thatare settled by delivering cash or another financial asset.

Market risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market prices. Marketrisk comprises three types of risk: currency risk, interest rate risk and other price risk.

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

Transaction costs are incremental costs that are directly attributable to the acquisition, issue or disposal of a financial asset or financial liability.An incremental cost is one that would not have been incurred if the municipality had not acquired, issued or disposed of the financial instrument.

Financial instruments at amortised cost are non-derivative financial assets or non-derivative financial liabilities that have fixed or determinablepayments, excluding those instruments that:

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

Financial instruments at fair value comprise financial assets or financial liabilities that are: derivatives; combined instruments that are designated at fair value; instruments held for trading. A financial instrument is held for trading if:

- it is acquired or incurred principally for the purpose of selling or repurchasing it in the near-term; or- on initial recognition it is part of a portfolio of identified financial instruments that are managed together and for which there isevidence of a recent actual pattern of short term profit-taking;- non-derivative financial assets or financial liabilities with fixed or determinable payments that are designated at fair value atinitial recognition; and- financial instruments that do not meet the definition of financial instruments at amortised cost or financial instruments at cost.

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Accounting Policies

1.6 Financial instruments (continued)

Initial recognition

The municipality recognises a financial asset or a financial liability in its statement of financial position when the municipality becomes a partyto the contractual provisions of the instrument.

The municipality recognises financial assets using trade date accounting.

Initial measurement of financial assets and financial liabilities

The municipality measures a financial asset and financial liability initially at its fair value plus transaction costs that are directly attributable tothe acquisition or issue of the financial asset or financial liability.

Subsequent measurement of financial assets and financial liabilities

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

Derecognition

Financial assets

The municipality 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 its entirety to an unrelated third party, and isable to exercise that ability unilaterally and without needing to impose additional 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.

Financial liabilities

The municipality removes a financial liability (or a part of a financial liability) from its statement of financial position when it is extinguished —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 as havingextinguished the original financial liability and a new financial liability is recognised. Similarly, a substantial modification of the terms of anexisting financial liability or a part of it is accounted for as having extinguished the original financial liability and having recognised a newfinancial liability.

The difference between the carrying amount of a financial liability (or part of a financial liability) extinguished or transferred to another party andthe consideration paid, including any non-cash assets transferred or liabilities assumed, is recognised in surplus or deficit. Any liabilities that arewaived, forgiven or assumed by another entity by way of a non-exchange transaction are accounted for in accordance with the Standard of GRAPon Revenue from Non-exchange Transactions (Taxes and Transfers).

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 is classified as anoperating 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.

Finance leases - Lessee

Leases that transfer substantially all the risks and rewards of ownership are classified as finance leases. All other leases are classified asoperating leases.The difference between the amounts recognised as revenue and the contracted receipts are recognised as an operating lease assetor liability

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Accounting Policies

1.7 Leases (continued)

Assets leased in terms of finance lease agreements are capitalized at amounts equal at the inception of the lease to the fair value of the leasedproperty, or lower, at the present value of the minimum lease payments. Capitalised leased assets are depreciated in accordance with theaccounting policy applicable to property, plant and equipment, refer to property, plant and equipment policy. The corresponding rentalobligations, net of finance charges, are included in long-term liabilities. Lease finance charges are amortised to the statement of financialperformance over the duration of the leases so as to achieve a constant rate of interest on the remaining balance of the liability.Minimum lease payments are apportioned between the finance charge and the reduction of the outstanding liability.

Operating leases - lessor

Operating lease revenue is recognised as revenue on a straight-line basis over the lease term.

Initial direct costs incurred in negotiating and arranging operating leases are added to the carrying amount of the leased asset and recognised asan expense over the lease term on the same basis as the lease revenue.

The aggregate cost of incentives is recognised as a reduction of rental revenue over the lease term on a straight-line basis.

The aggregate benefit of incentives is recognised as a reduction of rental expense over the lease term on a straight-line basis.

Income for leases is disclosed under revenue in statement of financial performance.

Operating leases - lessee

Operating lease payments are recognised as an expense on a straight-line basis over the lease term. The difference between the amountsrecognised as an expense and the contractual payments are recognised as an operating lease asset or liability.

1.8 Inventory

Inventory are initially measured at cost except where inventory are acquired through a non-exchange transaction, then their costs are their fairvalue as at the date of acquisition.

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

Inventory are measured at the lower of cost and current replacement cost where they are held for; distribution at no charge or for a nominal charge; or consumption in the production process of goods to be distributed at no charge or for a nominal charge.

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

Current replacement cost is the cost the municipality incurs to acquire the asset on the reporting date.

The cost of inventory comprises of all costs of purchase, costs of conversion and other costs incurred in bringing the inventory to their presentlocation and condition.

The cost of inventory of items that are not ordinarily interchangeable and goods or services produced and segregated for specific projects isassigned using specific identification of the individual costs.

The cost of inventory is assigned using the weighted average cost formula. The same cost formula is used for all inventory having a similar natureand use to the municipality.

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

1.9 Impairment of cash-generating assets

Cash-generating assets are those assets held by the municipality with the primary objective of generating a commercial return. When an asset isdeployed 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 recognition of the loss of theasset’s future economic benefits or service potential through depreciation (amortisation).

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Accounting Policies

1.9 Impairment of cash-generating assets (continued)

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

A cash-generating unit is the smallest identifiable group of assets held with the primary objective of generating a commercial return thatgenerates cash inflows from continuing use that are largely independent of the cash inflows from other assets or groups of assets.

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

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 between knowledgeable, willingparties, 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 municipality; or(b) the number of production or similar units expected to be obtained from the asset by the municipality.

Identification

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

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

Irrespective of whether there is any indication of impairment, the municipality also test a cash-generating intangible asset with an indefiniteuseful life or a cash-generating intangible asset not yet available for use for impairment annually by comparing its carrying amount with itsrecoverable amount. This impairment test is performed at the same time every year. If an intangible asset was initially recognised during thecurrent reporting period, that intangible asset was tested for impairment before the end of the current reporting period.

Recognition and measurement (individual asset)

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

An impairment loss is recognised immediately in surplus or deficit.

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

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

Reversal of impairment loss

The municipality assesses at each reporting date whether there is any indication that an impairment loss recognised in prior periods for a cash-generating asset may no longer exist or may have decreased. If any such indication exists, the entity estimates the recoverable amount of thatasset.

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

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

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

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Accounting Policies

1.9 Impairment of cash-generating assets (continued)

A reversal of an impairment loss for a cash-generating unit is allocated to the cash-generating assets of the unit pro rata with the carryingamounts of those assets. These increases in carrying amounts are treated as reversals of impairment losses for individual assets. No part of theamount of such a reversal is allocated to a non-cash-generating asset contributing service potential to a cash-generating unit.

In allocating a reversal of an impairment loss for a cash-generating unit, the carrying amount of an asset is not increased above the lower of: its recoverable amount (if determinable); and the carrying amount that would have been determined (net of amortisation or depreciation) had no impairment loss been recognised

for the asset in prior periods.

The amount of the reversal of the impairment loss that would otherwise have been allocated to the asset is allocated pro rata to the other assets ofthe unit.

1.10 Impairment of non-cash-generating assets

Cash-generating assets are those assets held by the municipality with the primary objective of generating a commercial return. When an asset isdeployed 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 recognition of the loss of theasset’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 any accumulated depreciationand accumulated impairment losses thereon.

A cash-generating unit is the smallest identifiable group of assets held with the primary objective of generating a commercial return thatgenerates cash inflows from continuing use that are largely independent of the cash inflows from other assets or groups of assets.

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

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 between knowledgeable, willingparties, 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 municipality; or(b) the number of production or similar units expected to be obtained from the asset by the municipality.

Identification

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

The municipality assesses at each reporting date whether there is any indication that a non-cash-generating asset may be impaired. If any suchindication exists, the municipality 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 an indefinite usefullife or a non-cash-generating intangible asset not yet available for use for impairment annually by comparing its carrying amount with itsrecoverable service amount. This impairment test is performed at the same time every year. If an intangible asset was initially recognised duringthe current reporting period, that intangible asset was tested for impairment before the end of the current reporting period.

Recognition and measurement

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

An impairment loss is recognised immediately in surplus or deficit.

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

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Accounting Policies

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

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

Reversal of an impairment loss

The municipality assess at each reporting date whether there is any indication that an impairment loss recognised in prior periods for a non-cash-generating asset may no longer exist or may have decreased. If any such indication exists, the municipality estimates the recoverable serviceamount 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 the estimates used todetermine the asset’s recoverable service amount since the last impairment loss was recognised. The carrying amount of the asset is increased toits recoverable service amount. The increase is a reversal of an impairment loss. The increased carrying amount of an asset attributable to areversal of an impairment loss does not exceed the carrying amount that would have been determined (net of depreciation or amortisation) had noimpairment loss been recognised for the asset in prior periods.

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

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

1.11 Share capital / contributions from owners

An equity instrument is any contract that evidences a residual interest in the assets of an municipality after deducting all of its liabilities.

1.12 Employee benefits

Short-term employee benefits

The cost of short-term employee benefits, (those payable within 12 months after the service is rendered, such as paid vacation leave and sickleave, bonuses, and non-monetary benefits such as medical care), are recognised in the period in which the service is rendered and are notdiscounted.

The expected cost of compensated absences is recognised as an expense as the employees render services that increase their entitlement or, in thecase of non-accumulating absences, when the absence occurs.

The expected cost of surplus sharing and bonus payments is recognised as an expense when there is a legal or constructive obligation to makesuch payments as a result of past performance.

Defined contribution plans

Payments to defined contribution retirement benefit plans are charged as an expense as they fall due.

Payments made to industry-managed (or state plans) retirement benefit schemes are dealt with as defined contribution plans where the entity’sobligation under the schemes is equivalent to those arising in a defined contribution retirement benefit plan.

Defined benefit plans

For defined benefit plans the cost of providing the benefits is determined using the projected credit method.

Actuarial valuations are conducted on an annual basis by independent actuaries separately for each plan.

Consideration is given to any event that could impact the funds up to end of the reporting period where the interim valuation is performed at anearlier date.

Past service costs are recognised immediately to the extent that the benefits are already vested, and are otherwise amortised on a straight linebasis over the average period until the amended benefits become vested.

To the extent that, at the beginning of the financial period, any cumulative unrecognised actuarial gain or loss exceeds ten percent of the greaterof the present value of the projected benefit obligation and the fair value of the plan assets (the corridor), that portion is recognised in surplus ordeficit over the expected average remaining service lives of participating employees. Actuarial gains or losses within the corridor are notrecognised.

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Accounting Policies

1.12 Employee benefits (continued)

Gains or losses on the curtailment or settlement of a defined benefit plan is recognised when the municipality is demonstrably committed tocurtailment or settlement.

When it is virtually certain that another party will reimburse some or all of the expenditure required to settle a defined benefit obligation, theright to reimbursement is recognised as a separate asset. The asset is measured at fair value. In all other respects, the asset is treated in the sameway as plan assets. In surplus or deficit, the expense relating to a defined benefit plan is presented as the net of the amount recognised for areimbursement.

The amount recognised in the statement of financial position represents the present value of the defined benefit obligation as adjusted forunrecognised actuarial gains and losses and unrecognised past service costs, and reduces by the fair value of plan assets.

Any asset is limited to unrecognised actuarial losses and past service costs, plus the present value of available refunds and reduction in futurecontributions to the plan.

1.13 Provisions and contingencies

Provisions are recognised when: the municipality 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 the reporting date.

Where the effect of time value of money is material, the amount of a provision is the present value of the expenditures expected to be required tosettle 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 to the liability.

Where some or all of the expenditure required to settle a provision is expected to be reimbursed by another party, the reimbursement isrecognised when, and only when, it is virtually certain that reimbursement will be received if the municipality settles the obligation. Thereimbursement is treated as a separate asset. The amount recognised for the reimbursement does not exceed 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 is no longer probablethat an outflow of resources embodying economic benefits or service potential will be required, to settle the obligation.

Where discounting is used, the carrying amount of a provision increases in each period to reflect the passage of time. This increase is recognisedas 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 municipality has a contract that is onerous, the present obligation (net of recoveries) under the contract is recognised and measured as aprovision.

Contingent assets and contingent liabilities are not recognised. Contingencies are disclosed in the annual financial statement in note number 38 .

1.14 Revenue from exchange transactions

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

An exchange transaction is one in which the municipality 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 in an arm’s lengthtransaction.

Measurement

Revenue is measured at the fair value of the consideration received or receivable, net of trade discounts and volume rebates.

Sale of goods

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Accounting Policies

1.14 Revenue from exchange transactions (continued)

Revenue from the sale of goods is recognised when all the following conditions have been satisfied: the municipality has transferred to the purchaser the significant risks and rewards of ownership of the goods; the municipality 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 municipality; 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 with the transactionis recognised by reference to the stage of completion of the transaction at the reporting date. The outcome of a transaction can beestimated 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 municipality; 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 a straight line basis overthe specified time frame unless there is evidence that some other method better represents the stage of completion. When a specific act is muchmore significant than any other acts, the recognition of revenue is postponed until the significant act is executed.

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

Service revenue is recognised by reference to the stage of completion of the transaction at the reporting date. Stage of completion is determinedby services performed to date as a percentage of total services to be performed.

Interest

Revenue arising from the use by others of entity assets yielding interest, royalties and dividends is recognised when: It is probable that the economic benefits or service potential associated with the transaction will flow to the municipality, and The amount of the revenue can be measured reliably.

Interest is recognised, in surplus or deficit, using the effective interest rate method.

1.15 Revenue from non-exchange transactions

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

Conditions on transferred assets are stipulations that specify that the future economic benefits or service potential embodied in the asset isrequired to be consumed by the recipient as specified or future economic benefits or service potential must be returned to the transferor.

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

Exchange transactions are transactions in which one entity receives assets or services, or has liabilities extinguished, and directly givesapproximately equal value (primarily in the form of cash, goods, services, or use of assets) to another entity in exchange.

Fines are economic benefits or service potential received or receivable by entities, as determined by a court or other law enforcement body, as aconsequence of the breach of laws or regulations.

Non-exchange transactions are transactions that are not exchange transactions. In a non-exchange transaction, an municipality either receivesvalue from another municipality without directly giving approximately equal value in exchange, or gives value to another municipality withoutdirectly receiving approximately equal value in exchange.

Recognition

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

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

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Accounting Policies

1.15 Revenue from non-exchange transactions (continued)

Measurement

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

When, as a result of a non-exchange transaction, the municipality recognises an asset, it also recognises revenue equivalent to the amount of theasset 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 berecognised it will be measured as the best estimate of the amount required to settle the obligation at the reporting date, and the amount of theincrease in net assets, if any, recognised as revenue. When a liability is subsequently reduced, because the taxable event occurs or a condition issatisfied, the amount of the reduction in the liability is recognised as revenue.

Taxes

The municipality recognises an asset in respect of taxes when the taxable event occurs and the asset recognition criteria are met.

Resources arising from taxes satisfy the definition of an asset when the municipality controls the resources as a result of a past event (the taxableevent) and expects to receive future economic benefits or service potential from those resources. Resources arising from taxes satisfy the criteriafor recognition as an asset when it is probable that the inflow of resources will occur and their fair value can be reliably measured. The degree ofprobability attached to the inflow of resources is determined on the basis of evidence available at the time of initial recognition, which includes,but is not limited to, disclosure of the taxable event by the taxpayer.

The municipality analyses the taxation laws to determine what the taxable events are for the various taxes levied.

The taxable event for property tax is the passing of the date on which the tax is levied, or the period for which the tax is levied, if the tax is leviedon a periodic basis.

Taxation revenue is determined at a gross amount. It is not reduced for expenses paid through the tax system.

Fines

Fines are recognised as revenue when the receivable meets the definition of an asset and satisfies the criteria for recognition as an asset.

Assets arising from fines are measured at the best estimate of the inflow of resources to the municipality.

Gifts and donations, including goods in-kind

Gifts and donations, including goods in kind, are recognised as assets and revenue when it is probable that the future economic benefits orservice potential will flow to the municipality and the fair value of the assets can be measured reliably.

1.16 Borrowing costs

It is inappropriate to capitalise borrowing costs when, and only when, there is clear evidence that it is difficult to link the borrowingrequirements of an entity directly to the nature of the expenditure to be funded i.e. capital or current.

Borrowing costs are recognised as an expense in the period in which they are incurred.

1.17 Comparative figures

Where necessary, comparative figures have been reclassified to conform to changes in presentation in the current year.

1.18 Fruitless and wasteful expenditure

Fruitless and wasteful expenditure is expenditure that was made in vain and would have been avoided had reasonable care been exercised.Fruitless and wasteful expenditure is accounted for as expenditure in the Statement of Financial Performance and where recovered, it issubsequently accounted for as revenue in the Statement of Financial Performance.

1.19 Irregular expenditure

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

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Accounting Policies

1.20 Unauthorised expenditure

Unauthorised expenditure is expenditure that has not been budgeted, expenditure that is not in terms of the conditions of an allocation receivedfrom another sphere of government, municipality or organ of state and expenditure in the form of a grant that is not permitted in terms of theMunicipal Finance Management Act (Act 56 of 2003).

Unauthorised expenditure is accounted for as an expense in the Statement of Financial Performance and where recovered, it is subsequentlyaccounted for as revenue in the Statement of Financial Performance.

1.21 Budget information

Municipality are typically subject to budgetary limits in the form of appropriations or budget authorisations (or equivalent), which is given effectthrough authorising legislation, appropriation or similar.

General purpose financial reporting by municipality shall provide information on whether resources were obtained and used in accordance withthe legally adopted budget.

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

The approved budget covers the fiscal period from 7/1/2012 to 6/30/2013.

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

1.22 Related parties

The municipality 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, only entities withinthe national sphere of government are considered to be related parties.

Management are those persons responsible for planning, directing and controlling the activities of the municipality, including those chargedwith the governance of the municipality in accordance with legislation, in instances where they are required to perform such functions.

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

Only transactions with related parties not at arm’s length or not in the ordinary course of business are disclosed.

1.23 Commitments

Items are classified as commitment where the municipality commits itself to future transactions that will normally results in the outflow ofresources.Commitments are not recognised in the Statement of Financial Position as a liablilty, but are included in the disclosure notes in thefollowing cases:-approved and contracted commitments;-where the expenditure has been approved and contract has been awarded at the reporting date; and-where disclosure is required by specific standard of GRAP.

1.24 Event after balance sheet date

Adjusting event: An event after the reporting period that provides further evidence of conditions that existed at the end of the reporting period,including an event that indicates that the going concern assumption in relation to the whole or part of the municipal is not appropriate. [

Non-adjusting event: An event after the reporting period that is indicative of a condition that arose after the end of the reporting period.

AccountingAdjust financial statements for adjusting events - events after the balance sheet date that provide further evidence of conditions that existed at theend of the reporting period, including events that indicate that the going concern assumption in relation to the whole or part of the municipal isnot appropriate. Additional text

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Notes to the Annual Financial Statements2014 2013

R R

2. Commitments

Capital and current commitment

Capital Community assets 4,875,169 2,504,822 Infrastructure 3,216,629 3,712,064

8,091,798 6,216,886

Current Operational 2,510,128 4,783,093

The following are the projects forms part of the commitment ;-Construction of Mphanaman Community Hall;-Construction of High Mast Lights; --Designs of Street Lights and ;-Security and rental of two radio equipments.The above commitment will be finance from conditional grants and municipal owned revenue.

Operating leases - as lessor (income)

Minimum lease payments due - within one year - 52,959

Certain of the municipality's offices t is held to generate rental income. Lease agreements are cancellable and have terms from 1 to 3 years.There are no contingent rents receivable.

3. Irregular expenditure

Opening balance 6,276,825 2,388,840 Irregular expenditure - current year 262,667 3,887,985

6,539,492 6,276,825

Analysis of expenditure awaiting condonation per age classification

Current year 262,667 3,887,985Prior years 6,276,825 2,388,840

6,539,492 6,276,825

Details of irregular expenditure incurred

1. Payment made to the service provider for delivereditems that did not correspond with the specifications

262,667

4. Additional disclosure in terms of Municipal Finance Management Act

Contributions to SALGA

Council membership fee payable 450,000 400,000Amount paid - current year (450,000) (400,000)

- -

Medical Aid

Current payroll deduction 1,462,092 1,433,064Amount paid - current year (1,462,092) (1,433,064)

- -

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

Audit fees

Current year audit fee 1,424,880 1,312,270Amount paid - current year (1,424,880) (1,312,270)

- -

PAYE , SDL and UIF


- -

Pension fund


- -

VAT

VAT receivable 2,402,778 2,333,110

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

Councillors' arrear consumer accounts

The following Councillors had arrear accounts outstanding for more than 90 days at June 30, 2014:

June 30, 2014 Outstanding lessthan 90 days

R

Outstandingmore than 90

daysR

TotalR

Marote ET 211 319 530Mabotha R 213 481 694Phala MD 208 189 397Phala TN 114 - 114Moifo KH 213 541 754Moswane NP 213 804 1,017Mosoane M 213 666 879

1,385 3,000 4,385

June 30, 2013 Outstanding lessthan 90 days

R

Outstandingmore than 90

daysR

TotalR

Phala TN 91 - 91Moifo HK - 151 151Mosoana DM - 736 736Moswane WM - 413 413Mabotha R - 121 121

91 1,421 1,512

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

During the year the following Councillors’ had arrear accounts outstanding for more than 90 days.

Supply chain management regulations

In terms of section 36 of the Municipal Supply Chain Management Regulations any deviation from the Supply Chain Management Policy needsto be approved by Municipal Manager and noted by Council on quartely basis.

DescriptionDeviations on goods and services less than R30 000 32,299 211,149Deviations on goods and services between R30 000 and R200 000 122,000 66,454

154,299 277,603

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Notes to the Annual Financial Statements

5. New standards and interpretations

5.1 Standards and interpretations effective and adopted in the current year

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

Standard/ Interpretation: Effective date:Years beginning on or after

Expected impact:

GRAP 25: Employee benefits April 01, 2013 GRAP 1 (as revised 2012): Presentation of Financial Statements April 01, 2013 GRAP 3 (as revised 2012): Accounting Policies, Change in

Accounting Estimates and ErrorsApril 01, 2013

GRAP 9 (as revised 2012): Revenue from Exchange Transactions April 01, 2013 GRAP 12 (as revised 2012): Inventories April 01, 2013 GRAP 13 (as revised 2012): Leases April 01, 2013 GRAP 16 (as revised 2012): Investment Property April 01, 2013 GRAP 17 (as revised 2012): Property, Plant and Equipment April 01, 2013 GRAP 27 (as revised 2012): Agriculture (Replaces GRAP 101) April 01, 2013 GRAP 31 (as revised 2012): Intangible Assets (Replaces GRAP

102)April 01, 2013

IGRAP16: Intangible assets website costs April 01, 2013 IGRAP1 (as revised 2012):Applying the probability test on initial

recognition of revenueApril 01, 2013

5.2 Standards and interpretations issued, but not yet effective

The municipality has not applied the following standards and interpretations, which have been published and are mandatory for themunicipality’s accounting periods beginning on or after July 01, 2014 or later periods:

Standard/ Interpretation: Effective date:Years beginning on or after

Expected impact:

IGRAP 11: Consolidation – Special purpose entities April 01, 2014 None IGRAP 12: Jointly controlled entities – Non-monetary

contributions by venturesApril 01, 2014 None

GRAP 6 (as revised 2010): Consolidated and Separate FinancialStatements

April 01, 2014 None

GRAP 7 (as revised 2010): Investments in Associates April 01, 2014 None GRAP 8 (as revised 2010): Interests in Joint Ventures April 01, 2014 None GRAP32: Service Concession Arrangements: Grantor April 01, 2015 GRAP108: Statutory Receivables April 01, 2015 IGRAP17: Service Concession Arrangements where a Grantor

Controls a Significant Residual Interest in an AssetApril 01, 2015

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6. Investment property

2014 2013

Cost / Valuation Accumulateddepreciation and

accumulatedimpairment

Carrying value Cost / Valuation Accumulateddepreciation and


Carrying value

Investment property 3,378,504 - 3,378,504 6,579,091 - 6,579,091

Details of valuation

Municipality made use of external and independent professional valuer to value two properties within its juristiction.The valuation was based onopen market value for existing use.The following are two properties that were currently valued by the professional valuer1.Municipality has Thusong services centre which is being leased out to various agencies in Atok.2.Municipality has 64 hectors of land or investment property situated in Hoeraroep farmks 515 in Apel

These assumptions are based on current market conditions.

7. Property, plant and equipment

2014 2013

Cost Accumulateddepreciation and


Book Value Cost Accumulateddepreciation and


Book Value

Land 11,688,895 - 11,688,895 11,555,965 - 11,555,965Buildings 66,637,633 (14,981,316) 51,656,317 65,124,842 (10,738,245) 54,386,597Furniture and fixtures (10,956) - (10,956) - - -Office equipment 262,667 - 262,667 - - -Infrastructure 5,775,757 (312,480) 5,463,277 5,775,757 (312,480) 5,463,277Other property, plant and equipment 14,436,040 (7,498,049) 6,937,991 11,827,201 (4,269,771) 7,557,430Work in progress 27,401,010 - 27,401,010 8,978,498 - 8,978,498

Total 126,191,046 (22,791,845) 103,399,201 103,262,263 (15,320,496) 87,941,767

Reconciliation of property, plant and equipment - 2014

Opening balance Additions Disposals Depreciation TotalLand 11,555,965 132,930 - - 11,688,895Buildings 54,386,597 2,263,472 - (4,993,752) 51,656,317Furniture and fixtures - 828,824 - (839,780) (10,956)Motor vehicles - 430,984 - (430,984) -Office equipment - 262,667 - - 262,667IT equipment - 130,203 - (130,203) -Infrastructure 5,463,277 167,000 - (167,000) 5,463,277Other property, plant and equipment 7,557,430 - (553,442) (65,997) 6,937,991Work in progress 8,978,498 18,422,512 - - 27,401,010

87,941,767 22,638,592 (553,442) (6,627,716) 103,399,201

Reconciliation of property, plant and equipment - 2013

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7. Property, plant and equipment (continued)

Opening balance Additions Transfer Depreciation Impairment loss TotalLand 11,555,965 - - - - 11,555,965Buildings 49,512,373 7,887,037 - (2,804,329) (208,483) 54,386,597Infrastructure 5,309,167 310,916 - (156,806) - 5,463,277Other property, plant and equipment 6,607,671 2,489,446 - (1,499,160) (40,527) 7,557,430Work in progress 7,005,577 6,483,990 (4,511,069) - - 8,978,498

79,990,753 17,171,389 (4,511,069) (4,460,295) (249,010) 87,941,767

8. Heritage assets

2014 2013

Cost / Valuation Accumulatedimpairment

losses

Carrying value Cost / Valuation Accumulatedimpairment

losses

Carrying value

Stamp collections, military insignia,medals, coin

105,000 - 105,000 105,000 - 105,000

Reconciliation of heritage assets 2014

Opening balance TotalStamp collections, military insignia, medals, coin 105,000 105,000

Reconciliation of heritage assets 2013

Opening balance TotalStamp collections, military insignia, medals, coin 105,000 105,000

9. Long term service awards

The accounting standard require that the liabilities are valued using the projected credit unit method. This method was used to valueliabilities at year end. Consistent with the provision of IAS 19, the liability has been calculated as the accrued service liability. Theaccrued service liability is calculated by valuing all future leave and payments expected to be made in respect of benefits accrued up thevaluation date. Allowance has been made in these calculations for salary increases and investment returns up to the date that the benefitis received..

Movement in the net liability recognised on the statment of financial position

Opening balance 412,897 292,168Net expense recognised in the statement of financial performance 84,123 120,729

Closing balance 497,020 412,897

Net expense recognised in the statement of financial performance

Current service cost 102,748 96,582Interest cost 31,892 27,297Actuarial (gains) losses (13,714) -Benefits payment (36,803) (3,150)

Total included in employee related costs 84,123 120,729

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9. Long term service awards (continued)

Key assumptions used

Below are the assumptions used at the reporting date:

Discount rates used %8.74 %8.10General Inflation %6.36 %5.40Salary Inflation %7.36 %6.40Real rate(Gap) %1.29 %1.60

The discount rate required by IAS 19 should be set with reference to a highly quality corporate bond. In countries where there is no deepmarket in such bonds, the market yield on government bonds should be used. The R186 government bond yield was used as at 30 June2014.The general assumption is used to estimate the base rate for determining the rate at which the future salaries will increase.The estimated market pricing of inflation by comparing the yields on the index linked government bonds and long term bonds, adjusting foran inflation risk premium of 0,5% per annum .The implied inflation assumption is therefore 6.36 % per annum for future inflation. Futuresalaries can be expected to increase in line with salary inflation. Salary inflation will exceed general inflation by 1, 0% per annum. Themunicipality does not have any specific assets set aside to profound for this liability..

10. Inventory

Inventories 334,100 109,618

Inventory is stated at lower of cost, net realisable value or current replacement cost where applicable.

11. Receivables from exchange transactions

Debtors-council facilities 135,801 110,053Prepaid expenses 96,050 96,050

231,851 206,103

12. Receivables from non-exchange transactions

Fines 1,856,287 1,223,418Provision for traffic fines (230,514) (226,224)Public contributions and subsidies 24,687 -

1,650,460 997,194

13. VAT receivable

VAT 2,402,778 2,333,110

VAT disclosed separately due to it being material and VAT receivable is stated at VAT output less VAT input for the period.

VAT is accounted for on a cash basis.

14. Receivables

Gross balancesRates 10,180,359 2,892,257Refuse 8,973,374 4,969,641

19,153,733 7,861,898

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14. Receivables (continued)

Less: Allowance for impairmentRates (7,020,260) (2,747,644)Refus

fetakgomo local municipality annual financial ......net increase/(decrease) in cash and cash...

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