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Emalahleni Local Municipality 
Annual Financial Statements 
for the year ended 30 June 2019 




Emalahleni Local Municipality 

Annual Financial Statements for the year ended 30 June 2019 

General Information 


Legal form of entity Local Municipality MP 312 Governed by MFMA 

Nature of business and principal activities The main business of the municipality is to structure and manage the 

administration, budgeting and planning process to give priority to basic 
needs of the community and to promote the social and economic 
development of the community. The main type of services rendered by 
the municipality includes the provision of electricity and 
water,collection,purifying and disposal of waste water and the 
construction and maintenance of roads and provision of parks,sport 
and recreation facilities. 


Mayoral committee 

Executive Mayor 
Speaker 
Chief Whip 

Members of Mayoral committee 


MPAC Chairperson 
Councillors 


L M Malatjie 
M B Hlumbane 
C N Nkalitshana 

D M Skhosana - MMC Community services 
B H Maseko - MMC Development planning 
S J Matshipa - MMC Corporate services 
C P Maseko - MMC Financial services 
T T Mathebula - MMC Environmental and waste 
M S Nkosi - MMC Technical services 
PJ Dijiana 
M Bhamjee 
A J J Brits 
D C Chembe 
N F Coetzer 
R E Cronje 
P L Debeila 
P J Djiana 
M T Fakude 
L B Goqo 
D H Grobler 
T P Gulube 
M S Jallal 
M B Jiyane 
R Kgomo 
A B Khumalo 
K N Khumalo 

B T Lukhele-Resigned during the year 
T G Mabula 
M S Magagula 
M J Makola 

T D Malahle-Resigned during the year 
M M Malaza 

V J Manana 
M Z Maseko 
G B Masilela 

M A Matemane 
P N Mazibuko 
L Mbekeni 

V J Nhlapho 
D E Mlaba 


1 



Emalahleni Local Municipality 

Annual Financial Statements for the year ended 30 June 2019 

General Information 


Grading of local authority 
Accounting Officer 
Chief Finance Officer (CFO) 
Registered office 


Postal address 


Bankers 

Auditors 


Z B Mlangeni 
N L Mofokeng 
S L Mokoena 
P L Mokwena 
T G Mabula 
L Phego 
J J Msibi 
D N Mthimkhulu 
ZVZ Mtshweni 
A S Mtsweni 
N Naidu 
B D Nkosi 
S L Nkosi 
B P Nukani 
M B Phahlane 
M H Phahlamohlaka 
J Schneider-Breetzke 
T C Shabalala 
S B Shabangu 
M E Shongwe 
K Silaule 
L Steyn 
M A Tswaledi 
W A Van Dyk 
H J Venter 
M Venter 
P H Wilken 
J M Zondo 
V L Hills 
M E Morokolo 

5 

H S Mayisela 

P J Hlatshwayo 

Civic centre 
Mandela street 
Emalahleni 
1035 

P O Box 3 

Emalahleni 

1035 

ABSA Bank Limited 
Auditor General of South Africa 


Country of incorporation 


South Africa 


2 





Emalahleni Local Municipality 

Annual Financial Statements for the year ended 30 June 2019 

General Information 

Central email contact details admin@emalahleni.gov.za 

Audit committee members 

Audit committee chairperson SAB Ngobeni 

B Mathibela 
P Mangoma 
N Msibi 


3 





Emalahleni Local Municipality 

Annual Financial Statements for the year ended 30 June 2019 

Index 

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


Page 

Accounting Officer's Responsibilities and Approval 6 

Audit Committee Report 7 - 8 

Accounting Officer's Report 9 

Statement of Financial Position 10 

Statement of Financial Performance 11 

Statement of Changes in Net Assets 12 

Cash Flow Statement 13 

Statement of Comparison of Budget and Actual Amounts 14-15 

Accounting Policies 16-37 

Notes to the Annual Financial Statements 37 - 74 


4 




Emalahleni Local Municipality 

Annual Financial Statements for the year ended 30 June 2019 

Index 


COID 

Compensation for Occupational Injuries and Diseases 

CRR 

Capital Replacement Reserve 

DBSA 

Development Bank of South Africa 

GRAP 

Generally Recognised Accounting Practice 

HDF 

Housing Development Fund 

IAS 

International Accounting Standards 

IPSAS 

International Public Sector Accounting Standards 

ME's 

Municipal Entities 

MEC 

Member of the Executive Council 

MFMA 

Municipal Finance Management Act 

MIG 

Municipal Infrastructure Grant (Previously CMIP) 

DOE 

Department of energy 

MSCOA 

Municipal Standard Chart Of Accounts 

MSIG 

Municipal Systems Improvement Grant 

PPE 

Property , plant and equipment 

INCA 

Infrastructure Finance Corporation Limited 

UIF 

Unemployment Insurance Fund 

PAYE 

Pay As You Earn 

COGTA 

Co-oprative Governance and Traditional Affairs 

VAT 

Value Added Tax 

MPAC 

Municipal Public Accounts Committee 

CRC 

Current Replacement Cost 

MREP 

Municipal Revenue Enhancement Program 

NDPG 

Neighbourhood Development Program Grant 


5 





Emalahleni Local Municipality 

Annual Financial Statements for the year ended 30 June 2019 

Accounting Officer's Responsibilities and Approval 


The accounting officer is required by the MFMA, to maintain adequate accounting records and is responsible for the content 
and integrity of the annual financial statements and related financial information included in this report. It is the responsibility of 
the accounting officer to ensure that the annual financial statements fairly present the state of affairs of the municipality as at 
the end of the financial year and the results of its operations and cash flows for the period then ended. The external auditors 
are engaged to express an independent opinion on the annual financial statements and will be given unrestricted access to all 
financial records and related data. 

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. 

The annual financial statements are based upon appropriate accounting policies consistently applied and supported by 
reasonable and prudent judgements and estimates. 

The accounting officer acknowledges that he is ultimately responsible for the system of internal financial control established by 
the municipality and place considerable importance on maintaining a strong control environment. To enable the accounting 
officer to meet these responsibilities, the accounting officer 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 accounting procedures and adequate segregation of duties to ensure an acceptable level of risk. 
These controls are monitored throughout the municipality and all employees are required to maintain the highest ethical 
standards in ensuring the municipality’s business is conducted in a manner that in all reasonable circumstances is above 
reproach. The focus of risk management in the municipality is on identifying, assessing, managing and monitoring all known 
forms of risk across the municipality. While operating risk cannot be fully eliminated, the municipality endeavours to minimise it 
by ensuring that appropriate infrastructure, controls, systems and ethical behaviour are applied and managed within 
predetermined procedures and constraints. 

Although the accounting officer are primarily responsible for the financial affairs of the municipality, they are supported by the 
municipality's audit committee. 

The audit committee are responsible for independently reviewing and reporting on the municipality's annual financial 
statements. The annual financial statements have been examined by the municipality's external auditors. 

The annual financial statements set out on page 9, which have been prepared on the going concern basis, were approved by 
the accounting officer on 31 August 2019 and were signed on its behalf by: 


H S Mayisela 
Accounting officer 


6 






Emalahleni Local Municipality 

Annual Financial Statements for the year ended 30 June 2019 

Audit Committee Report 


1. Audit Committee Responsibility 

The Audit Committee reports that it has complied with its responsibilities arising from Section 166 of the Municipal Finance 
Management Act and Circular 65 issued by National Treasury. The Audit Committee also reports that it has adopted 
appropriate formal terms of reference as per its Audit Committee Charter, and it has regulated its affairs in compliance with this 
charter and has discharged all its responsibilities as contained therein, except that we have not reviewed changes in 
accounting policies and practices. 

2. Audit Committee members and attendance 

The Audit Committee, consisting of independent outside members listed below, meets at least four times per annum as per its 
approved terms of reference, although additional special meetings may be called as the need arises. 


3. The effectiveness of Internal Control 

Our review of the internal control environment revealed that there is room for improvement in the system of internal control of 
the municipality and the reduction of qualification issues of previous year. Furthermore, there are several deficiencies in the 
system of internal control and/or deviations that were reported by the internal auditors and the Auditor-General. However, the 
Audit Committee notes management’s commitment and action plan to correct deficiencies. 

4. In-Year Management and Monthly/Quarterly Report 

The municipality does not have an effective monthly and quarterly reporting system to the Council as required by the Municipal 
Finance Management Act (MFMA). Furthermore, there is a room for improvement in so far as monitoring and reviews of 
financial and performance information on a periodically. 

5. Performance Management 

The AC reviewed functionality of the performance management system and it appears to be functional, however, there is a 
room for improvement in so far as achievement of planned targets is concerned and submission of portfolio of evidence 
timeously. 

6. Risk Management 

The AC is of the opinion that municipality’s risk management appears to be effective for the better of the year in al material 
respect, and the municipality did implement a comprehensive risk management strategy and related policies. A sound and 
effective approach has been followed in developing strategic risk management plans and there is a sense of appreciation of the 
impact of the municipality’s risk management framework on the control environment. However, there is room for improvement 
in so far as fraud prevention is concerned. 

7. Compliance with laws and regulations 

A number of non-compliance with the enabling laws and regulations were revealed by Audit Committee, AGSA, and Internal 
Audit during the year. Thus, there is room for improvement in so far as establishing an effective system for monitoring 
compliance with laws and regulations and the results of management’s investigation and follow-up (including disciplinary 
action) of any instances of non-compliance. 

8. Internal Audit 

The AC is satisfied with the effectiveness of Internal Audit, and commend Management and Council for capacitating this unit. 

9. Progress in implementation of AGSA findings from prior year 

Not all AGSA recommendations were implemented by management at the time of this report as only 55% of the 
recommendations were implemented. There is room for improvement in this regard and the AC recommended to the 
municipality to prioritise the implementation of recommendations by AGSA. 

10. Progress on implementations of Internal audit recommendations 


7 




Emalahleni Local Municipality 

Annual Financial Statements for the year ended 30 June 2019 

Audit Committee Report 


Not all internal audit recommendations were implemented by management satisfactorily as only 36% of the recommendations 
were implemented. There is a room for improvement in this regard and thus, AC recommended to municipality to prioritise the 
implementation of recommendations by Internal Audit. 

11. Implementations of Audit Committee Recommendations by management 

Not all audit committee recommendations by management were implemented satisfactorily as only 56% of the resolutions were 
implemented by year end. There is a room for improvement in this regard and thus, AC recommended to municipality to fast 
track the implementation of recommendations by Audit Committee 

12. Conclusion 

The Audit Committee wishes to acknowledge the commitment from Council, management and staff of the municipality. The 
stability in terms of the political and administrative leadership of the municipality has contributed to these improvements report 
above. We would also like to thank the Executive Mayor for her support, Councillors, senior management for their efforts and 
internal audit for their contribution. 


SAB Ngobeni (Mr) 


8 





Emalahleni Local Municipality 

Annual Financial Statements for the year ended 30 June 2019 

Accounting Officer's Report 


The accounting officer submits his report for the year ended 30 June 2019. 

1. Review of activities 
Main business and operations 


Net deficit of the municipality was R 51 370 991 (2018: deficit R 510 633 444). 

2. Going concern 

The annual 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 and settlement of 
liabilities, contingent obligations and commitments will occur in the ordinary course of business 

3. Subsequent events 

The were no subsequent events that occurred during the financial year. 

4. Accounting policies 

The annual financial statements prepared in accordance with the South African Statements of Generally Accepted Accounting 
Practice (GRAP), including any interpretations of such Statements issued by the Accounting Practices Board, and in 
accordance with the prescribed Standards of Generally Recognised Accounting Practices (GRAP) issued by the Accounting 
Standards Board as the prescribed framework by National Treasury. 

5. Reclassification 

During the financial year the accounting officer has reclassified certain amounts in the financial statements in order to achieve 
fair presentation. 

6. Accounting Officer 

The accounting officer of the municipality during the year and to the date of this report is as follows: 

H S Mayisela 

7. Auditors 

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


H S Mayisela 
Accounting officer 


9 






Emalahleni Local Municipality 

Annual Financial Statements for the year ended 30 June 2019 

Statement of Financial Position as at 30 June 2019 

Figures in Rand Note(s) 2019 2018 

Restated* 


Assets 

Current Assets 

Inventories 

Receivables from other exchange transactions 

Receivables from non-exchange transactions 

VAT receivable 

Consumer debtors 

Cash and cash equivalents 


Non-Current Assets 

Biological assets 
Investment property 
Property, plant and equipment 
Intangible assets 
Heritage assets 
Other financial assets 

Total Assets 

Liabilities 

Current Liabilities 

Loans 

Finance lease obligation 
Payables from exchange transactions 
Consumer deposits 

Unspent conditional grants and receipts 
Provisions 


Non-Current Liabilities 

Loans 

Finance lease obligation 
Provisions 

Total Liabilities 
Net Assets 

Accumulated surplus 


9 

32 993 038 

20 284 689 

10 

38 103 820 

39 877 886 

11 

232 068 478 

12 423 071 

12 

144 581 784 

138 322 381 

13 

2 665 025 110 

1 855 386 041 

14 

85 536 328 

6 478 158 


3 198 308 558 

2 072 772 226 


3 

1 972 470 

1 916 173 

4 

1 076 193 452 

1 077 952 547 

5 

5 615 707 679 

5 501 604 339 

6 

2 483 137 

3 860 313 

7 

400 000 

400 000 

8 

4 816 262 

5 107 174 


6 701 573 000 

6 590 840 546 


9 899 881 558 

8 663 612 772 


17 

17 069 503 

22 584 002 

15 

2 126 512 

2 126 512 

19 

3 605 547 505 

2 350 856 783 

20 

135 569 355 

121 362 931 

16 

8 050 084 

2 897 744 

18 

65 405 524 

62 053 483 


3 833 768 483 

2 561 881 455 


17 

50 969 873 

62 430 764 

15 

(407 289) 

355 428 

18 

431 519 912 

401 851 364 


482 082 496 

464 637 556 


4 315 850 979 

3 026 519 011 


5 584 030 579 

5 637 093 761 


5 584 030 579 

5 356 423 376 


See Note 52 & 51 


10 






Emalahleni Local Municipality 

Annual Financial Statements for the year ended 30 June 2019 

Statement of Financial Performance 

Figures in Rand Note(s) 2019 2018 

Restated* 


Revenue 


Revenue from exchange transactions 

Service charges 

Rental of facilities and equipment 

Commission received 

Licences and permits 

Sundry income 

Fees earned 

Interest revenue 

Fair value adjustments 

Actuarial gains 

Dividends received 

Total revenue from exchange transactions 

Revenue from non-exchange transactions 

Taxation revenue 

Property rates 

Transfer revenue 

Government grants & subsidies 
Public contributions and donations 
Fines 

Total revenue from non-exchange transactions 
Total revenue 

Expenditure 

Employee related costs 
Remuneration of councillors 
Depreciation and amortisation 
Impairment loss 
Finance costs 

Lease rentals on operating lease 
Debt Impairment 
Bulk purchases 
Contracted services 
Grants and Subsidies 
Loss on disposal of assets 
Fair value adjustments 
General Expenses 


22 

1 488 673 275 

1 520 262 984 

23 

10 374 053 

10 050 229 

25 

38 425 745 

32 888 563 

26 

3 250 668 

2 419 141 

27 

17 485 888 

28 200 019 

28 

1 358 520 

651 978 

29 

270 743 067 

226 581 592 

44 

56 297 

- 

43 

24 601 900 

16 021 000 

29 

107 443 

42 919 


1 855 076 856 

1 837 118 425 


30 

476 565 331 

458 423 084 

32 

520 551 660 

473 783 200 

33 

189 912 137 

15 238 712 

24 

273 826 824 

20 200 058 


1 460 855 952 

967 645 054 

21 

3 315 932 808 

2 804 763 479 


34 

(883 415 752) 

(804 594 283) 

35 

(29 926 329) 

(26 925 001) 

36 

(285 023 720) 

(301 069 628) 

37 

(2 327 614) 

(17 064 979) 

38 

(408 505 916) 

(132 364 040) 

46 

(23 340 039) 

(21 432 316) 

39 

(191 977 999) 

(630 221 695) 

40 

(1 048 327 153) 

(917 747 340) 

41 

(234 541 943) 

(234 256 274) 

31 

(18 905 377) 

(21 153 962) 

5 

(18 632 602) 

(30 381 730) 

44 

- 

(465 241) 

42 

(222 379 355) 

(177 720 434) 


Total expenditure 

(3 367 303 799) 

[3 315 396 923) 

Deficit for the year 

(51 370 991) 

(510 633 444) 


*See Note 52 & 51 


11 






Emalahleni Local Municipality 

Annual Financial Statements for the year ended 30 June 2019 


Statement of Changes in Net Assets 



Accumulated 

Total net 

Figures in Rand 

surplus 

assets 

Balance at 01 July 2018 

5 356 423 376 

5 356 423 376 

Deficit for the year 

(386 612 868) 

(386 612 868) 


Adjustments 

946 955 236 

946 955 236 

Restated* Balance at 01 July 2018 

5 637 093 762 

5 637 093 762 

Changes in net assets 



Deficit for the year 

(51 370 991) 

(51 370 991) 

Total changes 

(51 370 991) 

(51 370 991) 

Balance at 30 June 2019 

5 584 030 579 

5 584 030 579 


Note(s) 


*See Note 52 & 51 


12 






Emalahleni Local Municipality 

Annual Financial Statements for the year ended 30 June 2019 


Cash Flow Statement 


Figures in Rand 

Note(s) 

2019 

2018 

Restated* 

Cash flows from operating activities 




Receipts 




Taxation 


13 210 178 

19 142 459 

Sale of goods and services 


1 617 068 236 

2 558 142 018 

Grants 


520 551 660 

411 159 386 

Interest income 


270 743 067 

226 581 592 

Dividends received 


107 443 

42 919 



2 421 680 584 

3 215 068 374 

Payments 




Employee costs 


(913 342 081) 

(717 269 940) 

Suppliers 


(810 680 247) 

[1 718 890 288) 

Finance costs 


(408 505 916) 

(131 974 013) 



[2 132 528 244) 

2 568 134 241) 

Net cash flows from operating activities 


289 152 340 

646 934 133 

Cash flows from investing activities 




Purchase of property, plant and equipment 

5 

(177 193 133) 

(380 519 649) 

Net cash flows from investing activities 


(177 193 133) 

(377 690 489) 

Cash flows from financing activities 




Repayment of loans 


(16 975 390) 

(28 951 958) 

Finance lease payments 


(1 719 223) 

(8 435 576) 

Consumer deposits 


(14 206 424) 

732 763 

Net cash flows from financing activities 


(32 901 037) 

(36 654 771) 

Net increase/(decrease) in cash and cash equivalents 


79 058 170 

232 588 873 

Cash and cash equivalents at the beginning of the year 


6 478 158 

(597 679) 

Cash and cash equivalents at the end of the year 

14 

85 536 328 

231 991 194 


See Note 52 & 51 


13 






Emalahleni Local Municipality 

Annual Financial Statements for the year ended 30 June 2019 


Statement of Comparison of Budget and Actual Amounts 


Budget on Cash Basis 


Approved 

Adjustments Final Budget Actual amounts 

Difference Reference 


budget 

on comparable 

between final 



basis 

budget and 

Figures in Rand 



actual 


Statement of Financial Performance 
Revenue 


Revenue from exchange transactions 


Service charges 

2 057 422 545 

(536 924 134) 1 520 498 411 

1 488 673 275 

(31 825 136) 

2% 

Rental of facilities and equipment 

6 784 849 

(4 322 079) 2 462 770 

10 374 053 

7 911 283 

321% 

Interest received 

193 869 159 

72 486 745 266 355 904 

270 743 067 

4 387 163 

1.65% 

Dividends received 

- 

- 

107 443 

107 443 

100% 

Licences and permits 

194 483 

26 189 852 26 384 335 

3 250 668 

(23 133 667) 

87.6% 

Commissions received 

1 584 610 

972 373 2 556 983 

36 238 284 

33 681 301 

14001% 

Sundry income 

30 873 245 

(3 829 524) 27 043 721 

18 844 408 

(8 199 313) 

30.3% 

Fair value adjustments 

Total revenue from exchange transactions 

Revenue from non-exchange transactions 

2 290 728 891 

(445 426 767)1 845 302 124 

24 658 198 

1 852 889 396 

24 658 198 

7 587 272 

100% 

Taxation revenue 

Property rates 

426 739 508 

99 113 498 525 853 006 

476 565 331 

(49 287 675) 

9.37% 

Transfer revenue 

Government grants & subsidies 

529 415 300 

3 413 189 532 828489 

520 551 660 

(12 276 829) 

2.3% 

Public contributions and donations 

23 103 689 

469 770 23 573 459 

189 912 137 

166 338 678 

705.6% 

Fines 

Total revenue from non-exchange transactions 

Total revenue 

7 589 190 

986 847 687 

3 277 576 578 

21 380 049 28 969 239 

124 376 506 1 111 224 193 

(321 050 261)2 956 526 317 

273 826 824 

1 460 855 952 

3 313 745 348 

244 857 585 

349 631 759 

357 219 031 

845.2% 

Expenditure 

Employee related costs 

(868 353 765) 

- (868 353 765) 

(883 415 752) 

(15 061 987) 

1.73% 

Remuneration of councillors 

(30 027 330) 

. (30 027 330) 

(29 926 329) 

101 001 

0.34% 

Depreciation and amortisation 

(306 435 194) 

(20 287 839) (326 723 033) 

(285 023 720) 

41 699 313 

12.7% 


14 





Emalahleni Local Municipality 

Annual Financial Statements for the year ended 30 June 2019 

Statement of Comparison of Budget and Actual Amounts 


Budget on Cash Basis 


Figures in Rand 

Approved 

budget 

Adjustments 

Final Budget Actual amounts 
on comparable 
basis 

Difference 
between final 
budget and 
actual 

Reference 

Impairment loss 

_ 

_ 

(2 327 614) 

(2 327 614) 

100% 

Finance costs 

(84 041 476) 

(71 586 693) 

(155 628 169) (408 505 916) 

(252 877 747) 

61.6% 

Lease rentals on operating lease 

- 

- 

- (23 340 039) 

(23 340 039) 

100% 

Debt Impairment 

(388 001 064) 

(79 907 971) 

(467 909 035) (191 977 999) 

275 931 036 

58.9% 

Bulk purchases 

(1 038 553 229) 

(20 000 000)(1 058 553 229)(i 048 327 153) 

10 226 076 

0.97% 

Contracted Services 

(266 130 370) 

(586 401) 

(266 716 771) (234 541 943) 

32 174 828 

12.0% 

Grants and Subsidies 

(30 162 937) 

- 

(30 162 937) (18 905 377) 

11 257 560 

37.3% 

General Expenses 

(254 491 627) 

31 195 909 

(223 295 718) (222 379 355) 

916 363 

0.41% 

Total expenditure 

(3 266 196 992) 

(161 172 995)(3 427 369 987)(3 348 671 197) 

78 698 790 


Operating deficit 

11 379 586 

(482 223 256) 

(470 843 670) (34 925 849) 

435 917 821 


Loss on disposal of assets and liabilities 

- 

- 

■ (18 632 602) 

(18 632 602) 


Deficit before taxation 

11 379 586 

(482 223 256) 

(470 843 670) (53 558 451) 

417 285 219 


Actual Amount on Comparable Basis as Presented in the Budget and Actual 
Comparative Statement 

11 379 586 

(482 223 256) 

(470 843 670) (53 558 451) 

417 285 219 



15 





Emalahleni Local Municipality 

Annual Financial Statements for the year ended 30 June 2019 

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 as the basis of measurement, unless specified otherwise. They are presented in South African Rand,which is 
the functional currency of the Municipality. 

A summary of the significant accounting policies, which have been consistently applied,are disclosed below.All amounts have 
been rounded off to the nearest Rand. 


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 

In preparing the annual financial statements, management is required to make estimates and assumptions that affect the 
amounts represented in the annual financial statements and related disclosures. Use of available information and the 
application of judgement is inherent in the formation of estimates. Actual results in the future could differ from these estimates 
which may be material to the annual financial statements. Significant judgment include 

Trade recivables 

The municipality assesses its trade receivables, held to maturity investments and loans and receivables for impairment at the 
end of each reporting period. In determining whether an impairment loss should be recorded in surplus or deficit, the surplus 
makes judgments as to whether there is observable data indicating a measurable decrease in the estimated future cash flows 
from a financial asset. 

The impairment for trade receivables, held to maturity investments and loans and receivables is calculated on a portfolio basis, 
based on historical loss ratios, adjusted for national and industry-specific economic conditions and other indicators present at 
the reporting date that correlate with defaults on the portfolio. These annual loss ratios are applied to loan balances in the 
portfolio and scaled to the estimated loss emergence period. 

Impairment testing 

The recoverable amounts of cash-generating units and individual assets have been determined based on the higher of value 
in-use calculations and 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 may not be recoverable. In addition, goodwill is tested on an annual basis for impairment. Assets are grouped 
at the lowest level for which identifiable cash flows are largely independent of cash flows of other assets and liabilities. If there 
are indications that impairment may have occurred, estimates are prepared of expected future cash flows for each group of 
assets. Expected future cash flows or service potential used to determine the value in use of tangible assets are inherently 
uncertain and could materially change over time. They are significantly affected by a number of factors including production 
estimates and service potential, together with economic factors such as exchange rates,inflation and interest. 

Provisions 

Provisions were raised and management determined an estimate based on the information available. Additional disclosure of 
these estimates of provisions are included in note 18 - Provisions. 

Useful lives of property , plant and equipment and other assets 

The municipality's management determines the estimated useful lives and related depreciation charges for property,plant and 
equipment and other assets. This estimate is based on the pattern in which an asset's future economic benefits or service 
potential are expected to be consumed by the municipality. Management will increase the depreciation charge where useful 
lives are less than previously estimated useful lives 


16 





Emalahleni Local Municipality 

Annual Financial Statements for the year ended 30 June 2019 

Accounting Policies 


1.2 Significant judgements and sources of estimation uncertainty (continued) 

Post retirement benefits 

The present value of the post retirement obligation depends on a number of factors that are determined on an actuarial basis 
using a number of assumptions. The assumptions used in determining the net cost (income) include the discount rate. Any 
changes in these assumptions will impact on 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 the present value of estimated future cash outflows expected to be required to settle the pension obligations. In 
determining the appropriate discount rate, the municipality considers the interest rates of high-quality corporate bonds that are 
denominated in the currency in which the benefits will be paid, and that have terms to maturity approximating the terms of the 
related pension liability. 

Other key assumptions for pension obligations are based on current market conditions. Additional information is disclosed in 
Note. 

Effective interest rate 

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

Allowance for doubtful debts 

On receivables an impairment loss is recognised in surplus and deficit when there is objective evidence that it is impaired. The 
impairment is measured as the difference between the debtors carrying amount and the present value of estimated future cash 
flows discounted at the effective 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, rather than 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. 

Land held for a currently 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 with the 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. 


17 





Emalahleni Local Municipality 

Annual Financial Statements for the year ended 30 June 2019 

Accounting Policies 


1.3 Investment property (continued) 

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 part is recognised in the carrying amount of the investment property, the carrying amount of the replaced part is 
derecognised. 

Subsequent measurement 

Subsequent to initial measurement investment property is measured using the cost model. The investment property is 
measured at cost less accumulated depreciation and accumulated impairment. The investment property is depreciated over a 
period of 10-50 years. 

Investment property is unrecognised on disposal or when the investment property is permanently withdrawn from use and no 
future economic benefits or service potential are expected from its disposal. 

Gains or losses arising from retirement or disposal of investment property is the difference between the net disposal proceeds 
and the carrying amount of the asset and is recognised in surplus or deficit in the period of retirement or disposal. 

Compensation fro third parties for investment property that was impaired, lost or given up is recognised in surplus or deficit 
when the compensation becomes receivable. 


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 or supply 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 and condition necessary for it to be capable of operating in the manner intended by management. Trade discounts and 
rebates 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 monetary assets, or a 
combination of monetary and non-monetary assets, the asset acquired is initially measured at fair value (the cost). If the 
acquired item's fair value 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 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 add to, replace part of, or service it. If a replacement cost is recognised in the carrying amount of an item of 
property, 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 also 
included in the cost of property, plant and equipment, where the entity is obligated to incur such expenditure, and where the 
obligation 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 location 
and condition necessary for it to be capable of operating in the manner intended by management. 

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


18 





Emalahleni Local Municipality 

Annual Financial Statements for the year ended 30 June 2019 


Accounting Policies 


1.4 Property, plant and equipment (continued) 

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

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

Item 

Average useful life 

Infrastructure 


• Roads and paving 

3-80 years 

• Pedestrain mails 

3-80 years 

• Electricity 

3-80 years 

• Water 

5-100 years 

• Sewerage 

10-60 years 

Community assets 


• Buildings 

5-80 years 

• Recreational Facilities 

5-80 years 

• Security 

5-80 years 

• Halls 

5-80 years 

• Libraries 

5-80 years 

• Parks and gardens 

5-80 years 

Finance leased assets 


• Office equipment 

3-15 years 

Heritage assets 


• Buildings 


• Painting and artifacts 


Other assets 


• Specialist vehicles 

4-20 years 

• Motor cycles 

3-20 years 

• Trucks/Bakkies 

4-20 years 

• Busses 

4-20 years 

• Fire engines 

3-10 years 

• Computer hardware & Software 

3-15 years 

• Office machines 

3-15 years 

• Air conditioners 

3-15 years 

• Furniture & fittings 

3-15 years 

• Household refuse bins 

5-15 years 

• Bulk containers 

10-55 years 

• Landfill sites 

10-55 years 

• Quarries 

10-55 years 

• Emergency equipment 

10-55 years 

• Airport/Radio Beacons 

10-30 years 

• Security systems/access control 

3-5 years 

• Fencing 

3-5 years 


1.5 Property,plant and equipment 

In 2018/19 financial year the municipality accounts for Game as other property,plant and equipment in accordance with GRAP 
17.This game does not meet the defination of inventory as it is not sold or used in the ordinry coure of operations nor is this the 
agricultural produce at the point of harvest.The activities undertaken are recreational purposes i.e Biological assets are on 
nature reserves and are not agricultural activities for purposes of GRAP 27.The auction price has been used in the 
determination of the maret value 


19 









Emalahleni Local Municipality 

Annual Financial Statements for the year ended 30 June 2019 

Accounting Policies 


1.6 Site restoration and dismantling cost 

The municipality has an obligation to dismantle, remove and restore items of property, plant and equipment. Such 
obligations are referred to as ‘decommissioning, restoration and similar liabilities’. The cost of an item of property, plant and 
equipment includes the initial estimate of the costs of dismantling and removing the item and restoring the site on which it is 
located, the obligation for which a municipality incurs either when the item is acquired or as a consequence of having used 
the item during a particular period for purposes other than to produce inventories during that period. 

If the related asset is measured using the cost model: 

(a) subject to (b), changes in the liability are added to, or deducted from, the cost of the related asset in the current 
period; 

(b) if a decrease in the liability exceeds the carrying amount of the asset, the excess is recognised immediately in 
surplus or deficit; and 

(c) if the adjustment results in an addition to the cost of an asset, the municipality considers whether this is an 
indication that the new carrying amount of the asset may not be fully recoverable. If it is such an indication, the 
asset is tested for impairment by estimating its recoverable amount or recoverable service amount, and any 
impairment loss is recognised in accordance with the accounting policy on impairment of cash-generating assets 
and/or impairment of non-cash-generating assets. 


1.7 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 of 
whether the entity intends to do so; or 

• arises from binding arrangements (including rights from contracts), regardless of whether those rights are 
transferable or separable from the municipality or from other rights and obligation 


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 municipality; and 

• the cost or fair value of the asset can be measured reliably. 

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

An intangible asset arising from development (or from the development phase of an internal project) is recognised when: 

• it is technically feasible to complete the asset so that it will be available for use or sale. 

• there is an intention to complete and use or sell it. 

• there is an ability to use or sell it. 

• it will generate probable future economic benefits or service potential. 

• there are available technical, financial and other resources to complete the development and to use or sell the 
asset. 

• the expenditure attributable to the asset during its development can be measured reliably. 

Intangible assets are initially recognised at cost model. 

An intangible asset is regarded as having an indefinite useful life when, based on all relevant factors, there is no foreseeable 
limit to the period over which the asset is expected to generate net cash inflows or service potential. Amortisation is not 
provided for these intangible assets, but they are tested for impairment annually and whenever there is an indication that the 
asset 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 that 
the asset may be impaired. As a result the asset is tested for impairment and the remaining carrying amount is amortised over 
its useful life. 

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


20 






Emalahleni Local Municipality 

Annual Financial Statements for the year ended 30 June 2019 

Accounting Policies 


1.7 Intangible assets (continued) 

Internally generated brands,mastheads,publishing tittles,customer lists and items similar in sustance are not recognised as 
intangable assets. 

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


Item Average useful life 

Computer software, internally generated 5 years 

Computer software, other 5 years 

1.8 Heritage assets 


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, the municipality estimates the recoverable amount or the recoverable service amount of the heritage asset. 

1.9 Financial instruments 

A financial instrument is any contract that gives rise to a financial asset of municipality and a financial liability or a residual 
interest of another municipality. 

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

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. 

Currency risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in 
foreign exchange rates. 

Derecognition is the removal of a previously recognised financial asset or financial liability from a municipality's statement of 
financial position. 

A derivative is a financial instrument or other contract with all three of the following characteristics: 

• Its value changes in response to the change in a specified interest rate, financial instrument price, commodity price, 
foreign exchange rate, index of prices or rates, credit rating or credit index, or other variable, provided in the case of 
a non-financial variable that the variable is not specific to a party to the contract (sometimes called the ‘underlying’). 

• It requires no initial net investment or an initial net investment that is smaller than would be required for other types 
of contracts that would be expected to have a similar response to changes in market factors. 

• It is settled at a future date. 

financial asset is: 

• cash; 


21 







Emalahleni Local Municipality 

Annual Financial Statements for the year ended 30 June 2019 

Accounting Policies 


1.9 Financial instruments (continued) 

• a residual interest of another municipality; or 

• a contractual right to: 

receive cash or another financial asset from another municipality; or 

exchange financial assets or financial liabilities with another municipality under conditions that are potentially 
favourable to the municipality. 

A financial liability is any liability that is a contractual obligation to: 

• deliver cash or another financial asset to another municipality; 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 interest rates. 

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


Classification 

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


Class 

Investments 

Consumable debtors 

Receivables from exchange transactions 

Receivables from non-exchange transactions 


Category 

Financial asset measured at amortised cost 
Financial asset measured at amortised cost 
Financial asset measured at amortised cost 
Financial asset measured at amortised cost 


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


Class 

Consumable deposits 

Trade and other payables from exchange transactions 
Unspent conditional grants and receipts 
Finance leases 

Payables from non-exchange transactions 
Loans 


Category 

Financial liability 
Financial liability 
Financial liability 
Financial liability 
Financial liability 
Financial liability 


measured at amortised cost 
measured at amortised cost 
measured at amortised cost 
measured at amortised cost 
measured at amortised cost 
measured at amortised cost 


Initial recognition 

The municipality recognises a financial asset or a financial liability in its statement of financial position when the municipality 
becomes a party to 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 recognises a financial asset and financial liability initially at ist fair value plus transaction costs that are directly 
attributable to the acquisition or issue of financial asset or financial liability. 


22 





Emalahleni Local Municipality 

Annual Financial Statements for the year ended 30 June 2019 

Accounting Policies 


1.9 Financial instruments (continued) 

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. 

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

Fair value measurement considerations 

The best evidence of fair value is quoted prices in an active market. If the market for a financial instrument is not active, the 
municipality establishes fair value by using a valuation technique. The objective of using a valuation technique is to establish 
what the transaction price would have been on the measurement date in an arm’s length exchange motivated by normal 
operating considerations. Valuation techniques include using recent arm’s length market transactions between knowledgeable, 
willing parties, if available, reference to the current fair value of another instrument that is substantially the same, discounted 
cash flow analysis and option pricing models. If there is a valuation technique commonly used by market participants to price 
the instrument and that technique has been demonstrated to provide reliable estimates of prices obtained in actual market 
transactions, the entity uses that technique. The chosen valuation technique makes maximum use of market inputs and relies 
as little as possible on entity-specific inputs. It incorporates all factors that market participants would consider in setting a price 
and is consistent with accepted economic methodologies for pricing financial instruments. Periodically, an municipality 
calibrates the valuation technique and tests it for validity using prices from any observable current market transactions in the 
same instrument (i.e. without modification or repackaging) or based on any available observable market data. 

The fair value of a financial liability with a demand feature (e.g. a demand deposit) is not less than the amount payable on 
demand, discounted from the first date that the amount could be required to be paid. 

Gains and losses 

A gain or loss arising from a change in the fair value of a financial asset or financial liability measured at fair value is 
recognised in surplus or deficit. 

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

Impairment and uncollectibility of financial assets 

The municipality assesses at the end of each reporting period whether there is any objective evidence that a financial asset or 
group of financial 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, the 
amount of the loss is measured as the difference between the asset’s carrying amount and the present value of estimated 
future cash flows (excluding future credit losses that have not been incurred) discounted at the financial asset’s original 
effective interest rate. The carrying amount of the asset is reduced directly OR through the use of an allowance account. The 
amount 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 an 
event occurring after the impairment was recognised, the previously recognised impairment loss is reversed directly OR by 
adjusting an allowance account. The reversal does not result in a carrying amount of the financial asset that exceeds what the 
amortised cost would have been had the impairment not been recognised at the date the impairment is reversed. The amount 
of the reversal is recognised in surplus or deficit. 

Financial assets measured at cost: 

If there is objective evidence that an impairment loss has been incurred on an investment in a residual interest that is not 
measured at fair value because its fair value cannot be measured reliably, the amount of the impairment loss is measured as 
the difference between the carrying amount of the financial asset and the present value of estimated future cash flows 
discounted at the current market rate of return for a similar financial asset. Such impairment losses are not reversed. 


23 





Emalahleni Local Municipality 

Annual Financial Statements for the year ended 30 June 2019 

Accounting Policies 


1.9 Financial instruments (continued) 

Derecognition 
Financial assets 

The municipality derecognises financial assets using trade date accounting. 

The municipality derecognises a financial asset only when: 

• the contractual rights to the cash flows from the financial asset expire, are settled or waived; 

• the municipality transfers to another party substantially all of the risks and rewards of ownership of the financial 
asset; or 

• the municipality, 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 is able to exercise that ability unilaterally and without needing to impose 
additional restrictions on the transfer. In this case, the municipality : 

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 on 
the basis of their relative fair values at the transfer date. Newly created rights and obligations are measured at their fair values 
at that date. Any difference between the consideration received and the amounts recognised and derecognised is recognised 
in surplus or deficit in the period of the transfer. 

If the municipality transfers a financial asset in a transfer that qualifies for derecognition in its entirety and retains the right to 
service the financial asset for a fee, it recognise either a servicing asset or a servicing liability for that servicing contract. If the 
fee to be received is not expected to compensate the entity adequately for performing the servicing, a servicing liability for the 
servicing obligation is recognised at its fair value. If the fee to be received is expected to be more than adequate compensation 
for the servicing, a servicing asset is recognised for the servicing right at an amount determined on the basis of an allocation of 
the carrying 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 new 
financial asset or assuming a new financial liability, or a servicing liability, the entity recognise the new financial asset, financial 
liability 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 the 
consideration received is recognised in surplus or deficit. 


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 
having extinguished the original financial liability and a new financial liability is recognised. Similarly, a substantial modification 
of the terms of an existing financial liability or a part of it is accounted for as having extinguished the original financial liability 
and having recognised a new financial liability. 

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


24 





Emalahleni Local Municipality 

Annual Financial Statements for the year ended 30 June 2019 

Accounting Policies 


1.9 Financial instruments (continued) 

Presentation 

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

Dividends or similar distributions relating to a financial instrument or a component that is a financial liability is recognised as 
revenue or expense in surplus or deficit. 

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

A financial asset and a financial liability are only offset and the net amount presented in the statement of financial position 
when the entity currently has a legally enforceable right to set off the recognised amounts and intends either to settle on a net 
basis, 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 municipality does not offset the 
transferred asset and the associated liability. 

1.10 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 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. 

Finance leases - lessee 

Finance leases are recognised as assets and liabilities in the statement of financial position at amounts equal to the fair value 
of the leased property or, if lower, the present value of the minimum lease payments. The corresponding liability to the lessor is 
included in the statement of financial position as a finance lease obligation. 

The discount rate used in calculating the present value of the minimum lease payments is the interest rate implicit in the lease . 

Minimum lease payments are apportioned between the finance charge and reduction of the outstanding liability. The finance 
charge is allocated to each period during the lease term so as to produce a constant periodic rate of on the remaining balance 
of the liability. 

Any contingent rents are expensed in the period in which they are incurred. 

1.11 Inventories 

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

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

Inventories 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 estimated costs 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 inventories comprises of all costs of purchase, costs of conversion and other costs incurred in bringing the 
inventories to their present location and condition. 

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


25 





Emalahleni Local Municipality 

Annual Financial Statements for the year ended 30 June 2019 

Accounting Policies 


1.11 Inventories (continued) 

The cost of inventories is assigned using the first-in, first-out (FIFO) formula. The same cost formula is used for all inventories 
having a similar nature and use to the municipality. 

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

1.12 Construction contracts and receivables 

Construction contract is a contract, or a similar binding arrangement, specifically negotiated for the construction of an asset or 
a combination of assets that are closely interrelated or interdependent in terms of their design, technology and function or their 
ultimate purpose or use. 

Contractor is an entity that performs construction work pursuant to a construction contract. 

Cost plus or cost based contract is a construction contract in which the contractor is reimbursed for allowable or otherwise 
defined costs and, in the case of a commercially-based contract, an additional percentage of these costs or a fixed fee, if any. 

Fixed price contract is a construction contract in which the contractor agrees to a fixed contract price, or a fixed rate per unit of 
output, which in some cases is subject to cost escalation clauses. 

A contractor is an entity that enters into a contract to build structures, construct facilities, produce goods, or render services to 
the specifications of another entity either itself or through the use of sub-contractors. The term “contractor” thus includes a 
general or prime contractor, a subcontractor to a general contractor, or a construction manager. 

The entity assesses the terms and conditions of each contract concluded with customers to establish whether the contract is a 
construction contract or not. In assessing whether the contract is a construction contract, an entity considers whether it is a 
contractor. 

Where the outcome of a construction contract can be estimated reliably, contract revenue and costs are recognised by 
reference to the stage of completion of the contract activity at the reporting date, as measured by the proportion that contract 
costs incurred for work performed to date bear to the estimated total contract costs. 

Variations in contract work, claims and incentive payments are included to the extent that they have been agreed with the 
customer. 

When the outcome of a construction contract cannot be estimated reliably, contract revenue is recognised to the extent that 
contract costs incurred are recoverable. Contract costs are recognised as an expense in the period in which they are incurred. 

When it is probable that total contract costs will exceed total contract revenue, the expected deficit is recognised as an 
expense immediately. 

1.13 Impairment of cash-generating assets 

Cash-generating assets are assets used with the objective of generating a commercial return. Commercial return means that 
positive cash flows are expected to be significantly higher than the cost of the asset. 

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 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 any 
accumulated depreciation and accumulated impairment losses thereon. 

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


26 





Emalahleni Local Municipality 

Annual Financial Statements for the year ended 30 June 2019 

Accounting Policies 


1.13 Impairment of cash-generating assets (continued) 

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, 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: 

• the period of time over which an asset is expected to be used by the municipality; or 

• the number of production or similar units expected to be obtained from the asset by the municipality. 

judgments made by management in applying the criteria to designate assets as cash-generating assets or non-cash¬ 
generating assets, are as follows: 


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 such indication exists, the municipality estimates the recoverable amount of the asset. 

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

When estimating the value in use of an asset, the municipality estimates the future cash inflows and outflows to be derived 
from continuing use of the asset and from its ultimate disposal and the municipality applies the appropriate discount rate to 
those future cash flows. 

Basis for estimates of future cash flows 

In measuring value in use the municipality: 

• base cash flow projections on reasonable and supportable assumptions that represent management's best estimate 
of the range of economic conditions that will exist over the remaining useful life of the asset. Greater weight is given 
to external evidence; 

• base cash flow projections on the most recent approved financial budgets/forecasts, but excludes any estimated 
future cash inflows or outflows expected to arise from future restructuring's or from improving or enhancing the 
asset's performance. Projections based on these budgets/forecasts covers a maximum period of five years, unless a 
longer period can be justified; and 

• estimate cash flow projections beyond the period covered by the most recent budgets/forecasts by extrapolating the 
projections based on the budgets/forecasts using a steady or declining growth rate for subsequent years, unless an 
increasing rate can be justified. This growth rate does not exceed the long-term average growth rate for the 
products, industries, or country or countries in which the entity operates, or for the market in which the asset is used, 
unless a higher rate can be justified. 


27 





Emalahleni Local Municipality 

Annual Financial Statements for the year ended 30 June 2019 

Accounting Policies 


1.13 Impairment of cash-generating assets (continued) 

Discount rate 

The discount rate is a pre-tax rate that reflects current market assessments of the time value of money, represented by the 
current risk-free rate of interest and the risks specific to the asset for which the future cash flow estimates have not been 
adjusted. 

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 recoverable amount. This reduction is an impairment loss. 

An impairment loss is recognised immediately in surplus or 

When the amount estimated for an impairment loss is greater than the carrying amount of the cash-generating asset to which it 
relates, the municipality 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 to allocate the cash-generating asset’s revised carrying amount, less its residual value (if any), on a systematic 
basis over its remaining useful life. 

Cash-generating units 

If there is any indication that an asset may be impaired, the recoverable amount is estimated for the individual asset. If it is not 
possible to estimate the recoverable amount of the individual asset, the municipality determines the recoverable amount of the 
cash-generating unit to which the asset belongs (the asset's cash-generating unit). 

If an active market exists for the output produced by an asset or group of assets, that asset or group of assets is identified as a 
cash-generating unit, even if some or all of the output is used internally. If the cash inflows generated by any asset or cash¬ 
generating unit are affected by internal transfer pricing, the municipality use management's best estimate of future price(s) that 
could be achieved in arm's length transactions in estimating: 

• the future cash inflows used to determine the asset's or cash-generating unit's value in use; and 

• the future cash outflows used to determine the value in use of any other assets or cash-generating units that are 
affected by the internal transfer pricing. 

Cash-generating units are identified consistently from period to period for the same asset or types of assets, unless a change 
is justified. 

The carrying amount of a cash-generating unit is determined on a basis consistent with the way the recoverable amount of the 
cash-generating unit is determined. 

An impairment loss is recognised for a cash-generating unit if the recoverable amount of the unit is less than the carrying 
amount of the unit. The impairment is allocated to reduce the carrying amount of the cash-generating assets of the unit on a 
pro rata basis, based on the carrying amount of each asset in the unit. These reductions in carrying amounts are treated as 
impairment losses on individual assets. 

In allocating an impairment loss, the entity does not reduce the carrying amount of an asset below the highest of: 

• its fair value less costs to sell (if determinable); 

• its value in use (if determinable); and 

• zero. 

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

Where a non-cash-generating asset contributes to a cash-generating unit, a proportion of the carrying amount of that non- 
cash-generating asset is allocated to the carrying amount of the cash-generating unit prior to estimation of the recoverable 
amount of the cash-generating unit. 


28 





Emalahleni Local Municipality 

Annual Financial Statements for the year ended 30 June 2019 

Accounting Policies 


1.13 Impairment of cash-generating assets (continued) 

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 that asset. 

An impairment loss recognised in prior periods for a cash-generating asset is reversed if there has been a change in the 
estimates used to determine the asset’s recoverable amount since the last impairment loss was recognised. The carrying 
amount of the asset is increased to its recoverable 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 carrying amount that would 
have been determined (net of depreciation or amortisation) had no impairment loss 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 

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

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 carrying amounts of those assets. These increases in carrying amounts are treated as reversals of impairment losses for 
individual assets. No part of the amount 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 of the unit. 

1.14 Employee benefits 

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

A qualifying insurance policy is an insurance policy issued by an insurer that is not a related party (as defined in the Standard 
of GRAP on Related Party Disclosures) of the reporting municipality, if the proceeds of the policy can be used only to pay or 
fund employee benefits under a defined benefit plan and are not available to the reporting municipality’s own creditors (even in 
liquidation) and cannot be paid to the reporting municipality, unless either: 

• the proceeds represent surplus assets that are not needed for the policy to meet all the related employee benefit 
obligations; or 

• the proceeds are returned to the reporting municipality to reimburse it for employee benefits already paid. 

Termination benefits are employee benefits payable as a result of either: 

• an municipality’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. 

Other long-term employee benefits are employee benefits (other than post-employment benefits and termination benefits) that 
are not due to be settled within twelve months after the end of the period in which the employees render the related service. 

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

Composite social security programmes are established by legislation and operate as multi-employer plans to provide post¬ 
employment benefits as well as to provide benefits that are not consideration in exchange for service rendered by employees. 

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


29 





Emalahleni Local Municipality 

Annual Financial Statements for the year ended 30 June 2019 

Accounting Policies 


1.14 Employee benefits (continued) 

Short-term employee benefits 

Short-term employee benefits are employee benefits (other than termination benefits) that are due to be settled within twelve 
months 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 employees 
render the related employee service; 

• bonus, incentive and performance related payments payable within twelve months after the end of the reporting 
period 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, cars 
and cellphones) for current employees. 

When an employee has rendered service to the entity during a reporting period, the entity recognise the undiscounted amount 
of 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 the 
undiscounted amount of the benefits, municipality 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 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 increase 
their entitlement or, in the case of non-accumulating absences, when the absence occurs. The municipality measures the 
expected cost of accumulating compensated absences as the additional amount that the entity expects to pay as a result of the 
unused entitlement that has accumulated at the reporting date. 

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

Post-employment benefits 

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

Post-employment benefit plans are formal or informal arrangements under which an municipality provides post-employment 
benefits for one or more employees. 

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


30 





Emalahleni Local Municipality 

Annual Financial Statements for the year ended 30 June 2019 

Accounting Policies 


1.14 Employee benefits (continued) 

Post-employment benefits: Defined contribution plans 

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

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

• as a liability (accrued expense), after deducting any contribution already paid. If the contribution already paid 
exceeds the contribution due for service before the reporting date, an municipality 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 a 
cash 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 reporting 
period in which the employees render the related service, they are discounted. The rate used to discount reflects the time value 
of money. The currency and term of the financial instrument selected to reflect the time value of money is consistent with the 
currency and estimated term of the obligation. 

1.15 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 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 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 is recognised when, and only when, it is virtually certain that reimbursement will be received if the municipality 
settles the obligation. The reimbursement 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 probable that 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 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 deficit. 

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


31 





Emalahleni Local Municipality 

Annual Financial Statements for the year ended 30 June 2019 

Accounting Policies 


1.15 Provisions and contingencies (continued) 

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 an activity/operating unit concerned; 
the principal locations affected; 

the location, function, and approximate number of employees who will be compensated for services being 
terminated; 

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 that 
plan 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 municipality 

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

After their initial recognition contingent liabilities recognised in entity combinations that are recognised separately are 
subsequently 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 48. 

A financial guarantee contract is a contract that requires the issuer to make specified payments to reimburse the holder for a 
loss it incurs because a specified debtor fails to make payment when due in accordance with the original or modified terms of a 
debt instrument. 


32 





Emalahleni Local Municipality 

Annual Financial Statements for the year ended 30 June 2019 

Accounting Policies 


1.15 Provisions and contingencies (continued) 

Decommissioning, restoration and similar liability 

Changes in the measurement of an existing decommissioning, restoration and similar liability that result from changes in the 
estimated timing or amount of the outflow of resources embodying economic benefits or service potential required to settle the 
obligation, or a change in the discount rate, is accounted for as follows: 

If the related asset is measured using the cost model: 

• changes in the liability is added to, or deducted from, the cost of the related asset in the current period. 

• the amount deducted from the cost of the asset does not exceed its carrying amount. If a decrease in the liability 
exceeds the carrying amount of the asset, the excess is recognised immediately in surplus or deficit. 

• if the adjustment results in an addition to the cost of an asset, the entity consider whether this is an indication that 
the new carrying amount of the asset may not be fully recoverable. If there is such an indication, the entity test the 
asset for impairment by estimating its recoverable amount or recoverable service amount, and account for any 
impairment loss, in accordance with the accounting policy on impairment of assets as described in accounting policy 
1.13 and. 

If the related asset is measured using the revaluation model: 

• changes in the liability alter the revaluation surplus or deficit previously recognised on that asset, so that: 

a decrease in the liability is credited directly to revaluation surplus in net assets, except that it is recognised in 
surplus or deficit to the extent that it reverses a revaluation deficit on the asset that was previously recognised in 
surplus or deficit; and 

an increase in the liability is recognised in surplus or deficit, except that it is debited directly to revaluation 
surplus in net assets to the extent of any credit balance existing in the revaluation surplus in respect of that asset 

• a change in the liability is an indication that the asset may have to be revalued in order to ensure that the carrying 
amount does not differ materially from that which would be determined using fair value at the reporting date. Any 
such revaluation is taken into account in determining the amounts to be taken to surplus or deficit and net assets. If 
a revaluation is necessary, all assets of that class is revalued; an 

The adjusted depreciable amount of the asset is depreciated over its useful life. Therefore, once the related asset has reached 
the end of its useful life, all subsequent changes in the liability is recognised in surplus or deficit as they occur. This applies 
under both the cost model and the revaluation model. 

The periodic unwinding of the discount is recognised in surplus or deficit as a finance cost as it occurs. 

1.16 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 net assets, 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 
gives approximately equal value (primarily in the form of goods, services or use of assets) to the other party in exchange. 

Measurement 

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

Sale of goods 

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. 


33 





Emalahleni Local Municipality 

Annual Financial Statements for the year ended 30 June 2019 

Accounting Policies 


1.16 Revenue from exchange transactions (continued) 

Rendering of services 

When the outcome of a transaction involving the rendering of services can be estimated reliably, revenue associated with 
the transaction is recognised by reference to the stage of completion of the transaction at the reporting date. The outcome 
of 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 
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 over the specified time frame unless there is evidence that some other method better represents the stage of 
completion. When a specific act is much more 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 of the 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 determined by surveys of work performed. 

Interest, royalties and dividends 

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

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

1.17 Revenue from non-exchange transactions 

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

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

Non-exchange transactions are transactions that are not exchange transactions. In a non-exchange transaction, a municipality 
either receives value from another municipality without directly giving approximately equal value in exchange, or gives value to 
another municipality 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 deployed 
as specified. 

Stipulations on transferred assets are terms in laws or regulation, or a binding arrangement, imposed upon the use of a 
transferred asset by entities external to the reporting municipaliy. 

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


34 





Emalahleni Local Municipality 

Annual Financial Statements for the year ended 30 June 2019 

Accounting Policies 


1.17 Revenue from non-exchange transactions (continued) 

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 is also 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 transaction recognised as an asset, it reduces the carrying amount of the liability recognised and recognises an 
amount of revenue equal to that reduction. 

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 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 
the obligation at the reporting date, and the amount of the increase in net assets, if any, recognised as revenue. When a 
liability is subsequently reduced, because the taxable event occurs or a condition is satisfied, the amount of the reduction in the 
liability is recognised as revenue. 

Transfers 

The municipality recognises an asset in respect of transfers when the transferred resources meet the definition of an asset and 
satisfy the criteria for recognition as an asset. 

Transferred assets are measured at their fair value as at the date of acquisition. 

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. 

Where the municipality collects fines in the capacity of an agent, the fine will not be revenue of the collecting entity. 

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 or service potential will flow to the municipality and the fair value of the assets can be measured reliably. 

1.18 Investment income 

Investment income is recognised on a time-proportion basis using the effective interest method. 

1.19 Comparative figures 

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

1.20 Unauthorised expenditure 

Unauthorised expenditure means: 

• overspending of a vote or a main division within a vote; and 

• expenditure not in accordance with the purpose of a vote or, in the case of a main division, not in accordance with 
the purpose of the main division. 

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


35 





Emalahleni Local Municipality 

Annual Financial Statements for the year ended 30 June 2019 

Accounting Policies 


1.21 Fruitless and wasteful expenditure 

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

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

1.22 Irregular expenditure 

Irregular expenditure is expenditure that is contrary to the Municipal Finance Management Act(Act no 56 of 2003)the Municipal 
System Act(Act no 32 of 2000) and the Public office Bearers Act(Act no 20 of 1998),or is in contravention of the municipality's 
supply chain management policy.Irregular expenditure exclude unauthorised expenditure. 

Irregular expenditure that was incurred and identified during the current financial and which was condoned before year end 
and/or before finalisation of the financial statements must also be recorded appropriately in the irregular expenditure register. In 
such 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 being 
awaited at year end must be recorded in the irregular expenditure register. No further action is required with the exception of 
updating the note to the financial statements 

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 chain management policy. Irregular expenditure excludes unauthorised expenditure. Irregular 
expenditure is accounted for as expenditure in the Statement of Financial Performance and where recovered, it is subsequently 
accounted for as revenue in the Statement of Financial Performance. 

1.23 Offsetting 

Assets , liabilities , revenue and expenses have not been offset except when offsetting is required or permitted by a standard of 
GRAP. 


1.24 Conditional grants and receipts 

Revenue received from conditional grants, donations and funding are recognised as revenue to the extent that the municipality 
has complied 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. 


1.25 Budget information 

Municipality are typically subject to budgetary limits in the form of appropriations or budget authorisation's (or equivalent), 
which is given effect through authorising legislation, appropriation or similar. 

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

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

The approved budget covers the fiscal period from 2018/07/01 to 2019/06/30. 

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

The municipality considers any variance amount above the inflation of 10%. Explanations of the any material variances 
between the actual revenues and expenses as indicated above and the projected revenues by source and expenses by vote as 
set out in the service delivery and budget implementation plan. 


36 





Emalahleni Local Municipality 

Annual Financial Statements for the year ended 30 June 2019 

Accounting Policies 


1.25 Budget information (continued) 

The Statement of comparative and actual information has been included in the annual financial statements as the 
recommended disclosure when the annual financial statements and the budget are on the same basis of accounting as 
determined by National Treasury. 

1.26 Related parties 

A related party is a person or an entity with the ability to control or jointly control the other party, or exercise significant influence 
over the other party, or vice versa, or an entity that is subject to common control, or joint control. 

Control is the power to govern the financial and operating policies of an entity so as to obtain benefits from its activities. 

Joint control is the agreed sharing of control over an activity by a binding arrangement, and exists only when the strategic 
financial and operating decisions relating to the activity require the unanimous consent of the parties sharing control (the 
ventures). 

Related party transaction is a transfer of resources, services or obligations between the reporting entity and a related party, 
regardless of whether a price is charged. 

Significant influence is the power to participate in the financial and operating policy decisions of an entity, but is not control over 
those policies. 

Management are those persons responsible for planning, directing and controlling the activities of the municipality, including 
those charged with 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. 

The municipality is exempt from disclosure requirements in relation to related party transactions if that transaction occurs within 
normal supplier and/or client/recipient relationships on terms and conditions no more or less favourable than those which it is 
reasonable to expect the municipality to have adopted if dealing with that individual entity or person in the same circumstances 
and terms and conditions are within the normal operating parameters established by that reporting entity's legal mandate. 

Where the municipality is exempt from the disclosures in accordance with the above, the municipality discloses narrative 
information about the nature of the transactions and the related outstanding balances, to enable users of the entity’s financial 
statements to understand the effect of related party transactions on its annual financial statements. 

1.27 Events after reporting date 

Events after reporting date are those events, both favourable and unfavourable, that occur between the reporting date and the 
date when the financial statements are authorised for issue. Two types of events can be identified: 

• those that provide evidence of conditions that existed at the reporting date (adjusting events after the reporting date); 
and 

• those that are indicative of conditions that arose after the reporting date (non-adjusting events after the reporting 
date). 

The municipality will adjust the amount recognised in the financial statements to reflect adjusting events after the reporting date 
once the event occurred. 

The municipality will disclose the nature of the event and an estimate of its financial effect or a statement that such estimate 
cannot be made in respect of all material non-adjusting events, where non-disclosure could influence the economic decisions 
of users taken on the basis of the financial statements. 

1.28 Value-Added Tax 

The municipality accounts for value-added tax on an accrual basis. However the VAT paid / due to/by SARS is accounted for 
on a cash basis. 


Notes to the Annual Financial Statements 


37 





Emalahleni Local Municipality 

Annual Financial Statements for the year ended 30 June 2019 

Figures in Rand 2019 2018 


2. New standards and interpretations 

2.1 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 
financial year and that are relevant to its operations: 


Standard/ Interpretation: 

Effective date: Expected impact: 

Years beginning on or 

after 

• 

GRAP 12 (as amended 2016): Inventories 

01 April 2018 

• 

GRAP 16 (as amended 2016): Investment Property 

01 April 2018 

• 

GRAP 17 (as amended 2016): Property, Plant and 
Equipment 

01 April 2018 

• 

GRAP 21 (as amended 2016): Impairment of non-cash- 
generating assets 

01 April 2018 

• 

GRAP 26 (as amended 2016): Impairment of cash¬ 
generating assets 

01 April 2018 

• 

GRAP 27 (as amended 2016): Agriculture 

01 April 2018 

• 

GRAP 31 (as amended 2016): Intangible Assets 

01 April 2018 

• 

GRAP 103 (as amended 2016): Heritage Assets 

01 April 2018 

• 

Directive 12: The Selection of an Appropriate Reporting 
Framework by Public Entities 

01 April 2018 


38 






Emalahleni Local Municipality 

Annual Financial Statements for the year ended 30 June 2019 

Notes to the Annual Financial Statements 

Figures in Rand 


3. Biological assets 



2019 


2018 

Cost / 

Accumulated Carrying value 

Cost / 

Accumulated Carrying value 

Valuation 

depreciation 

Valuation 

depreciation 


and 


and 


accumulated 


accumulated 


impairment 


impairment 


Game in nature reserve 

1 972 470 - 1 972 470 1 916 173 

- 

1 916 173 

Reconciliation of biological assets - 2019 




Game in nature reserve 

Opening 

balance 

1 916 173 

Fair value 
adjustment 

56 297 

Total 

1 972 470 

Reconciliation of biological assets - 2018 




Game in nature reserve 

Opening 

balance 

2 239 070 

Fair value 
adjustment 
(322 897) 

Total 

1 916 173 

4. Investment property 





2019 

2018 



Cost/ Accumulated Carrying value Cost/ 

Valuation depreciation Valuation 

and 

accumulated 

impairment 

Accumulated 

depreciation 

and 

accumulated 

impairment 

Carrying value 

Investment property 

1 120 056 875 (43 863 423) 1 076 193 452 1 121 815 970 

(43 863 423) 1 077 952 547 


39 






Emalahleni Local Municipality 

Annual Financial Statements for the year ended 30 June 2019 

Notes to the Annual Financial Statements 

Figures in Rand 

4. Investment property (continued) 

Reconciliation of investment property - 2019 

Opening Disposals Adjustment to Depreciation Total 
balance accumulated 

depreciation 
and impairment 

Investment property 1 077 952 547 (98 117) 63 776 (1 724 754) 1 076 193 452 

Reconciliation of investment property - 2018 

Opening Disposals Adjustment to Impairments Depreciation Total 
balance accumulated 

depreciation 
and impairment 

Investment property 1 079 763 642 (32 659) 18 784 (48 025) (1 749 195) 1 077 952 547 

A register containing the information required by section 63 of the Municipal Finance Management Act is available for 
inspection at the registered office of the municipality. 


40 






Emalahleni Local Municipality 

Annual Financial Statements for the year ended 30 June 2019 

Notes to the Annual Financial Statements 

Figures in Rand 


5. Property, plant and equipment 



2019 


2018 

Cost / 

Accumulated Carrying value 

Cost / 

Accumulated Carrying value 

Valuation 

depreciation 

Valuation 

depreciation 


and 


and 


accumulated 


accumulated 


impairment 


impairment 


Land 

455 003 560 

- 

455 003 560 

455 003 560 

- 

455 003 560 

Buildings 

1 368 987 165 

(793 338 796) 

575 648 369 

1 372 067 758 

(760 902 658) 

611 165 100 

Furniture and fixtures 

26 279 460 

(8 161 406) 

18 118 054 

25 007 765 

(3 796 729) 

21 211 036 

Motor vehicles 

103 486 924 

(55 553 822) 

47 933 102 

100 257 423 

(59 290 923) 

40 966 500 

Water 

2 200 325 081 

(987 819 548)1 

212 505 533 

2 053 577 695 

(947 757 263) 1 

105 820 432 

Other property, plant and equipment 

30 963 535 

(17 983 708) 

12 979 827 

34 492 960 

(23 291 931) 

11 201 029 

Sewerage 

1 813 604 581 

(877 585 158) 

936 019 423 

1 702 833 184 

(850 404 704) 

852 428 480 

Roads 

3 310 581 255 

;i 996 717 036)1 

313 864 219 

3 287 102 834 

;i 901 586 951)1 

385 515 883 

Emergency equipment 

196 821 

(100 725) 

96 096 

218 996 

(98 018) 

120 978 

Electricity 

1 865 038 320 

(860 109 105)1 

004 929 215 

1 797 300 225 

(820 686 988) 

976 613 237 

Leased assets 

7 323 956 

(6 448 423) 

875 533 

7 193 958 

(4 135 794) 

3 058 164 

Tip sites 

93 708 332 

(57 209 477) 

36 498 855 

89 002 757 

(51 834 243) 

37 168 514 

Library books 

2 365 511 

(1 129 618) 

1 235 893 

2 365 511 

(1 034 085) 

1 331 426 

Total 

1 277 864 501 (5 662 156 822) 5 615 707 679 

0 926 424 626 (5 424 820 287) 5 501 604 339 


41 






Emalahleni Local Municipality 

Annual Financial Statements for the year ended 30 June 2019 

Notes to the Annual Financial Statements 

Figures in Rand 


5. Property, plant and equipment (continued) 
Reconciliation of property, plant and equipment - 2019 



Opening 

Additions 

Work in 

Work in 

Disposals 

Adjustment to 

Depreciation 

Impairment 

Total 


balance 


progress 

progress 


accumulated 







additions 

Transfers 


depreciation 




Land 

455 003 560 

- 

- 

- 

- 

- 

- 

- 

455 003 560 

Buildings 

611 165 100 

1 956 236 

212 500 

(1 144 443) 

(4 536 614) 

2 981 654 

(34 907 158) 

(78 906) 

575 648 369 

Furniture and fixtures 

21 211 036 

1 983 640 

- 

- 

(711 941) 

- 

(4 217 162) 

(147 519) 

18 118 054 

Motor vehicles 

40 966 500 

16 917 155 

- 

- 

(154 449) 

- 

(9 793 415) 

(2 689) 

47 933 102 

Water 

1 105 820 432 

153 358 808 

57 626 288 

(50 414 139) 

(14 036 110) 

8 664 135 

(48 128 099) 

(385 782) 1 

212 505 533 

Other property, plant and equipment 

11 201 029 

4 443 690 

- 

- 

(384 560) 

- 

(2 189 917) 

(90 415) 

12 979 827 

Sewerage 

852 428 480 

74 676 355 

43 845 275 

- 

(7 750 233) 

4 387 540 

(31 489 895) 

(78 099) 

936 019 423 

Roads 

1 385 515 883 

64 218 856 

27 785 755 

(63 342 892) 

(5 183 297) 

4 415 278 

(98 776 649) 

(768 715)1 

313 864 219 

Emergency equipment 

120 978 

- 

- 

- 

(2 205) 

- 

(22 677) 

- 

96 096 

Electricity mains 

976 613 237 

66 107 595 

39 644 609 

(26 157 265) 

(11 856 846) 

6 087 866 

(44 759 066) 

(750 915)1 

004 929 215 

Leased assets 

3 058 164 

- 

- 

- 

- 

- 

(2 182 631) 

- 

875 533 

Tip sites 

37 168 514 

10 064 748 

122 574 

(5 479 640) 

(2 107) 

562 

(5 354 406) 

(21 390) 

36 498 855 

Library books 

1 331 426 

- 

- 

- 

- 

- 

(95 533) 

- 

1 235 893 


5 501 604 339 

393 727 083 

169 237 001 

(146 538 379) 

(44 618 362) 

26 537 035 

(281 916 608) 

(2 324 430)5 615 707 679 


42 






Emalahleni Local Municipality 

Annual Financial Statements for the year ended 30 June 2019 

Notes to the Annual Financial Statements 

Figures in Rand 


5. Property, plant and equipment (continued) 
Reconciliation of property, plant and equipment - 2018 



Opening 

Additions 

Work in 

Work in 

Disposals 

Adjustments to 

Depreciation 

Impairment 

Total 


balance 


progress 

progress 


accumulated 


loss 





addition 

Transfers 


depreciation 









and impairment 




Land 

455 003 560 

- 

- 

- 

- 

- 

- 

- 

455 003 560 

Buildings 

648 898 387 

14 093 106 

492 660 

(443 070) 

(2 281 605) 

992 667 

(35 448 937) 

(15 138 108) 

611 165 100 

Furniture and fixtures 

20 843 447 

3 320 778 

- 

- 

- 

879 492 

(3 796 732) 

(35 949) 

21 211 036 

Motor vehicles 

40 268 812 

8 984 638 

- 

- 

- 

- 

(8 141 028) 

(145 922) 

40 966 500 

Water 

1 047 896 164 

88 760 087 

29 270 631 

(12 933 592) 

(7 009 032) 

3 415 382 

(43 538 755) 

(40 453) 1 

105 820 432 

Other property, plant and equipment 

12 720 087 

769 233 

- 

- 

- 

(975) 

(2 000 288) 

(287 028) 

11 201 029 

Sewerage 

883 798 761 

46 455 965 

32 744 189 

(80 188 190) 

(2 337 606) 

1 602 331 

(29 602 470) 

(44 500) 

852 428 480 

Roads 

1 438 572 135 

30 183 814 

37 350 607 

- 

(21 419 529) 

9 488 727 

(107 155 760) 

(1 504 111)1 

385 515 883 

Emergency equipment 

143 669 

- 

- 

- 

- 

- 

(22 691) 

- 

120 978 

Electricity 

976 432 743 

44 324 741 

47 968 155 

(34 202 329) 

(25 884 399) 

13 069 132 

(44 173 701) 

(921 105) 

976 613 237 

Leased assets 

4 451 611 

898 642 

- 

- 

- 

(360) 

(2 291 729) 

- 

3 058 164 

Tips sites 

40 308 063 

- 

2 096 361 

- 

(7 165) 

3 242 

(5 231 987) 

- 

37 168 514 

Library books 

1 427 295 

- 

- 

- 

- 

- 

(95 869) 

- 

1 331 426 


5 570 764 734 

237 791 004 

149 922 603 

(127 767 181) 

(58 939 336) 

29 449 638 

(281 499 947) 

(18 117 176)5 501 604 339 


Pledged as security 

No Property plant and equipment was pledged as a security. 


43 






Emalahleni Local Municipality 

Annual Financial Statements for the year ended 30 June 2019 

Notes to the Annual Financial Statements 

Figures in Rand 2019 2018 


5. Property, plant and equipment (continued) 
Reconciliation of Work-in-Progress 2019 



Opening 

Additions 

Transfers 

Total 

Buildings 

balance 

2 890 450 

212 500 

(1 144 443) 

1 958 507 

Electricity 

46 747 991 

39 644 609 

(26 157 265) 

60 235 335 

Roads and stormwater 

47 852 211 

27 785 755 

(63 342 892) 

12 295 074 

Tip sites 

5 357 066 

122 574 

(5 479 640) 

- 

Sanitation 

42 453 506 

43 845 275 

- 

86 298 781 

Water 

33 759 753 

57 626 288 

(50 414 139) 

40 971 902 


179 060 977 

169 237 001 

(146 538 379) 

201 759 599 

Reconciliation of Work-in-Progress 2018 


Opening 

Additions 

Transfers 

Total 

Buildings 

balance 

2 840 860 

492 660 

(443 070) 

2 890 450 

Electricity 

32 982 165 

47 968 155 

(34 202 329) 

46 747 991 

Roads and stormwater 

10 501 604 

37 350 607 

- 

47 852 211 

Tip sites 

3 260 705 

2 096 361 

- 

5 357 066 

Sanitation 

89 897 507 

32 744 189 

(80 188 190) 

42 453 506 

Water 

17 422 709 

29 270 636 

(12 933 592) 

33 759 753 


156 905 550 

149 922 608 

(127 767 181) 

179 060 977 


Work in progress projects taking long to complete during the year 

During the 2018/19 financial year the following Work in progress projects 
are taking long to complete due to budget constraints : 


Access control systems 83 731 

Air conditioner 47 335 

NDCP -Non motorised transport 1 614 941 

MIG - Comprehensive infrastructure plan 844 163 


2 590 170 


A register containing the information required by section 63 of the Municipal Finance Management Act is available for 
inspection at the registered office of the municipality. 

6. Intangible assets 




2019 


2018 



Cost / 
Valuation 

Accumulated Carrying value 
amortisation 
and 

accumulated 

impairment 

Cost / 
Valuation 

Accumulated 

amortisation 

and 

accumulated 

impairment 

Carrying value 

Computer software, other 

8 339 343 

(5 856 206) 2 483 137 

8 339 343 

(4 479 030) 

3 860 313 


Reconciliation of intangible assets - 2019 


Computer software, other 


Opening Amortisation Total 
balance 

3 860 313 (1 377 176) 2 483 137 


44 






Emalahleni Local Municipality 

Annual Financial Statements for the year ended 30 June 2019 


Notes to the Annual Financial Statements 


Figures in Rand 




2019 

2018 

6. Intangible assets (continued) 






Reconciliation of intangible assets - 2018 



Opening 

balance 

Amortisation 

Total 

Computer software, other 



5 237 802 

(1 377 489) 

3 860 313 

7. Heritage assets 







2019 



2018 


Cost / 

Accumulated 

Carrying value 

Cost / 

Accumulated 

Carrying value 

Valuation 

impairment 


Valuation 

impairment 



losses 



losses 


Sculptures 400 000 

- 

400 000 

400 000 

- 

400 000 

Reconciliation of heritage assets 2019 




Opening 

balance 

Total 

Sculptures 




400 000 

400 000 

Reconciliation of heritage assets 2018 




Opening 

balance 

Total 

Sculptures 




400 000 

400 000 

8. Other financial assets 






Designated at fair value 

Listed shares - Old Mutual 




862 564 

1 153 476 

At amortised cost 

Long term Deposits-New Republic Bank 




3 953 698 

3 953 698 

Total other financial assets 




4 816 262 

5 107 174 

Non-current assets 

Designated at fair value 




862 564 

1 153 476 

At amortised cost 




3 953 698 

3 953 698 





4 816 262 

5 107 174 

Financial assets at fair value 






9. Inventories 






Consumable stores 




31 297 782 

18 958 625 

Water for distribution 




986 648 

615 861 

Other 1 




10 289 

11 884 

Other 2 




698 319 

698 319 





32 993 038 

20 284 689 


45 






Emalahleni Local Municipality 

Annual Financial Statements for the year ended 30 June 2019 


Notes to the Annual Financial Statements 


Figures in Rand 

2019 

2018 

10. Receivables from other exchange transactions 

Other receivables 

18 042 646 

16 302 706 

Funeral expenses-employees and councillors 

75 450 

75 450 

Concillors UIF for prior year 

763 157 

763 157 

New Water Pre payment 

12 000 000 

12 000 000 

Housing/ ervens loans 

6 844 660 

6 844 660 

Recoverable projects 

346 535 

3 860 541 

Damage to minisub No : 21 Phola Zone 5 

31 372 

31 372 


38 103 820 

39 877 886 

11. Receivables from non-exchange transactions 

Trafic Fines 

232 068 478 

12 423 071 

12. VAT receivable 

VAT 

144 581 784 

138 322 381 


The municipality pays VAT over to SARS using the cash basis.Howvever the annual financials statements are prepared using 
the accrual basis of accounting.Hence the difference between the net VAT due to the municipality as reflectedon the VAT 201 
refunds and the net VAT payable disclosed on the financial statements.AII VAT returns have been submitted by the due date 
throughout the year. 

13. Consumer debtors 


Gross balances 


Rates 

613 945 513 

768 479 314 

Electricity 

1 086 141 141 

839 469 510 

Water 

1 567 540 483 

1 100 590 783 

Sewerage 

582 457 799 

423 199 147 

Refuse 

353 911 899 

247 804 097 

Other (specify) 

114 326 520 

36 085 721 


4 318 323 355 

3 415 628 572 

Less: Allowance for impairment 

Rates 

(114 271 371) 

(506 051 731) 

Electricity 

(342 770 442) 

(337 509 050) 

Water 

(744 130 613) 

(488 074 360) 

Sewerage 

(248 057 793) 

(132 685 304) 

Refuse 

(171 257 373) 

(78 238 380) 

Other (specify) 

(32 810 653) 

(17 683 706) 


[1 653 298 245) 

[1 560 242 531) 

Net balance 

Rates 

499 674 142 

262 427 583 

Electricity 

743 370 699 

501 960 460 

Water 

823 409 870 

612 516 423 

Sewerage 

334 400 006 

290 513 843 

Refuse 

182 654 526 

169 565 717 

Other (specify) 

81 515 867 

18 402 015 


2 665 025 110 

1 855 386 041 


46 






Emalahleni Local Municipality 

Annual Financial Statements for the year ended 30 June 2019 

Notes to the Annual Financial Statements 

Figures in Rand 2019 2018 


13. Consumer debtors (continued) 


Included in above is receivables from exchange transactions 

Electricity 

Water 

Sewerage 

Refuse 


Included in above is receivables from non-exchange transactions (taxes 
and transfers) 

Rates 

Other (specify) 


Net balance 


Rates 

Current (0 -30 days) 
31 - 60 days 
61 - 90 days 
91 - 120 days 
121 - 365 days 
> 365 days 


Electricity 

Current (0 -30 days) 
31 - 60 days 
61 - 90 days 
91 - 120 days 
121 -365 days 
> 365 days 


Water 

Current (0 -30 days) 
31 - 60 days 
61 - 90 days 
91 - 120 days 
121 - 365 days 
> 365 days 


Sewerage 

Current (0 -30 days) 
31 - 60 days 
61 - 90 days 
91 - 120 days 
121 - 365 days 
> 365 days 


743 370 699 
823 409 870 
334 400 006 
182 654 526 


2 083 835 101 


499 674 142 
81 515 867 


581 190 009 


2 665 025 110 


55 178 664 
30 620 026 
25 270 029 
21 778 485 
20 096 168 
346 730 770 


499 674 142 


43 994 114 
22 870 927 
18 086 589 
16 802 398 
15 732 405 
625 884 266 


743 370 699 


25 198 091 

18 494 081 
20 932 115 

19 511 687 
17 326 995 

721 946 901 


823 409 870 


6 829 127 
6 421 091 

5 955 284 

6 328 490 
5 937 169 

302 928 845 


334 400 006 


501 960 460 
612 516 423 
290 516 843 
169 565 717 


1 574 559 443 


262 427 583 
18 402 015 


280 829 598 


1 855 389 041 


28 979 698 
16 081 560 
13 271 755 
11 438 005 
10 554 450 
182 102 115 


262 427 583 


29 706 990 
15 443 575 
12 212 954 
11 345 806 
10 623 294 
422 627 841 


501 960 460 


18 744 304 

13 757 339 
15 570 938 

14 514 313 
12 889 169 

537 040 360 


612 516 423 


3 257 574 
3 062 936 

2 840 740 

3 018 764 
2 832 099 

275 501 730 


290 513 843 


47 






Emalahleni Local Municipality 

Annual Financial Statements for the year ended 30 June 2019 

Notes to the Annual Financial Statements 

Figures in Rand 2019 2018 


13. Consumer debtors (continued) 


Refuse 


Current (0 -30 days) 

7 224 069 

11 887 554 

31 - 60 days 

5 040 684 

8 294 688 

61 - 90 days 

4 711 414 

7 752 860 

91 - 120 days 

4 432 387 

7 293 707 

121 - 365 days 

4 570 048 

7 520 235 

> 365 days 

156 675 924 

126 816 673 


182 654 526 

169 565 717 

Other (specify) 

Current (0 -30 days) 

(4 568 879) 

(1 031 414) 

31 - 60 days 

2 192 946 

495 052 

61 - 90 days 

2 202 873 

497 293 

91 -120 days 

2 117 775 

478 083 

121 - 365 days 

2 046 566 

462 007 

> 365 days 

77 524 586 

17 500 994 

Summary of debtors by customer classification 

81 515 867 

18 402 015 

Reconciliation of allowance for impairment 

Balance at beginning of the year 

[1 562 012 628) 

(931 790 933) 

Contributions to allowance 

(91 285 618) 

(531 787 567) 

Debt impairment written off against allowance 

- 

(98 434 128) 

14. Cash and cash equivalents 

[1 653 298 246) 

[1 562 012 628) 

Cash and cash equivalents consist of: 

Collateral Investments 

235 386 

219 105 

Bank balances 

77 353 900 

5 572 061 

Market Account 

259 447 

504 376 

Call Account 

7 657 832 

129 038 

Petty cash 

29 763 

53 578 


85 536 328 

6 478 158 


48 






Emalahleni Local Municipality 

Annual Financial Statements for the year ended 30 June 2019 

Notes to the Annual Financial Statements 

Figures in Rand 2019 2018 


14. Cash and cash equivalents (continued) 

The municipality had the following bank accounts 


Account number / description 

Bank statement balances 

Cash book balances 

30 June 2019 : 

30 June 2018 

30 June 2017 

30 June 2019 

30 June 2018 

30 June 2017 

ABSA BANK -Main account- 

12 281 539 

7 862 635 

5 933 832 

77 072 421 

5 311 757 

4 245 164 

1360-000-091 

ABSA BANK - Licencing - 4080- 
890-928 

1 805 170 

2 304 293 

1 401 048 

646 986 

625 812 

625 812 

ABSA BANK - Nics-4080-890- 

- 

- 

54 049 

- 

- 

- 

952 

ABSA BANK - Trafic fines - 
4080-890-910 

620 787 

30 825 

28 629 

(365 507) 

(365 507) 

(365 507) 

ABSA BANK - Market - 1360- 

259 447 

504 376 

200 369 

259 447 

504 376 

200 369 

000-067 

ABSA BANK - MIG call account 

4 511 849 

638 

(5 450) 

4 511 841 

638 

(5 450) 

- 4080 885-959 

ABSA BANK - DOE call 
account- 4080-886-078 

2 835 851 

933 

(4 995) 

2 835 851 

933 

(4 994) 

ABSA BANK - Cheque account - 
4081-372-218 

309 309 

127 466 

750 

310 140 

127 466 

750 

NEDBANK BANK-Collateral 
Account 

184 189 

171 460 

157 548 

184 189 

171 460 

157 548 

FNB Collateral 

51 197 

47 644 

44 158 

51 197 

47 644 

44 158 

PETTY cash 

- 

- 

- 

29 763 

53 578 

31 372 

Total 

22 859 338 

11 050 270 

7 809 938 

85 536 328 

6 478 157 

4 929 222 

15. Finance lease obligation 







Present value of Minimum lease 

- within one year 

payments due 




(407 289) 

355 428 

- in second to fifth year inclusive 





2 126 289 

1 575 714 

Present value of minimum lease 

payments 




1 719 000 

1 931 142 


Non-current liabilities (407 289) 355 428 

Current liabilities 2 126 512 2 126 512 


1 719 223 2 481 940 


The muniipality enterers into fiance lease agreement with Konica minolta and Motswako office solutions .The municipality 
leases it photo copier machines.The average lease term is 3 years and the average effective borrowing rate is 7% for all new 
leases entered into(2018:9%).interest rates are fixed at the contract date.All leases have fixed repayments and no 
arrangements have been entered into for contingent rent. 

16. Unspent conditional grants and receipts 

Unspent conditional grants and receipts comprises of: 


Unspent conditional grants and receipts 


Municipal revenue enhancement 

9 804 

9 804 

Human settlement 

1 000 623 

2 835 689 

Neighbourhood Development partneship grant 

251 

52 251 

Water service infrastructure grants 

7 039 406 

- 


8 050 084 

2 897 744 


The nature and extent of government grants recognised in the annual financial statements and an indication of other forms of 
government assistance from which the municipality has directly benefited; an 


49 






Emalahleni Local Municipality 

Annual Financial Statements for the year ended 30 June 2019 

Notes to the Annual Financial Statements 

Figures in Rand 2019 2018 

16. Unspent conditional grants and receipts (continued) 

See not for reconciliation of grants from National/Provincial Government. 


50 






Emalahleni Local Municipality 

Annual Financial Statements for the year ended 30 June 2019 

Notes to the Annual Financial Statements 

Figures in Rand 2019 2018 


17. Loans 
At amortised cost 

INCA-Standard Bank 11 211 752 14 062 884 

The municipality has entered into the following agreements with INCA: 

1. The loan amount is R 4 400 000.00 for a period of 10 years with a 
redeemable date 31 December 2018, The applicable interest rate 9.4% per 
annum with an installment of R 34 4824.45 bi-annually. 

2. The loan amount is R 2 519 347.00 for a period of 15 years with a 
redeemable date 31 December 2021, The applicable interest rate 5% per 
annum with an installment of R 158 529.50 bi-annually. 

3. The loan amount is R 21 900 000.00 for a period of 15 years with a 
redeemable date 30 June 2022, The applicable interest rate 11.12% per 
annum with an installment of R 102 833.81 bi-annually . 

4. The loan amount is R 2 700 000.00 for a period of 15 years with a 
redeemable date 31 December 2022, The applicable interest rate 9.35% per 
annum with an installment of R 169 174.96 bi-annually. 

5. The loan amount is R 605 100.00 fora period of 10 years with a redeemable 
date 31 December 2018, The applicable interest rate 9.4% per annum with an 
installment of R 47 311.41 bi-annually. 

6. The loan amount is R 4 802 852.00 for a period of 15 years with a 
redeemable date 31 December 2024, The applicable interest rate 9.35% per 
annum with an installment of R 300 808.00 bi-annually. 

Development Bank of South Africa 37 775 378 47 136 573 

The municipality has entered into the following agreements with DBSA: 

1. The loan amount is R 82 547 000.00 for a period of 15 years with a 
redeemable date 30 June 2023, The applicable interest rate 9.28% per annum 
with an installment of R 5 154 352.23 bi-annually. 

2. The loan amount is R 2 350 123.00 for a period of 15 years with a 
redeemable date 30 June 2023, The applicable interest rate 5% per annum 
with an installment of R 112 314.77 bi-annually. 

3. The loan amount is R 13 100 000.00 for a period of 20 years with a 
redeemable date 30 June 2019, The applicable interest rate 9.38% per annum 
with an installment of R 1 02 193.66 bi-annually. 

4. The loan amount is R 2 582 560.00 for a period of 10 years with a 
redeemable date 30 June 2018, The applicable interest rate 5% per annum 
with an installment of R 165 707.18 bi-annually. 

5. The loan amount is R 6 700 000.00 for a period of 15 years with a 
redeemable date 30 June 2018, The applicable interest rate 9.34% per annum 
with an installment of R 419 901.02 bi-annually. 

6. The loan amount is R 15 019 633.00 for a period of 20 years with a 
redeemable date 30 June 2019, The applicable interest rate 12.05% per 
annum with an installment of R 1 092 861.67 bi-annually 


51 






Emalahleni Local Municipality 

Annual Financial Statements for the year ended 30 June 2019 

Notes to the Annual Financial Statements 

Figures in Rand 2019 2018 


17. Loans (continued) 

Nedbank 19 052 246 23 815 309 

The municipality has entered into the following agreements with Nedbank: 

1. The loan amount is R 71 445 948.00 for a period of 1 years with a 
redeemable date 30 June 2023, The applicable interest rate 11.39% per 
annum with an installment of R 4 668 261.00 bi-annually. 


68 039 376 85 014 766 

Total other financial liabilities 68 039 376 85 014 766 

Non-current liabilities 

At amortised cost 

Current liabilities 

At amortised cost 


50 969 873 62 430 764 


17 069 503 22 584 002 


52 






Emalahleni Local Municipality 

Annual Financial Statements for the year ended 30 June 2019 

Notes to the Annual Financial Statements 

Figures in Rand 2019 2018 


18. Provisions 


Reconciliation of provisions - 2019 



Opening 

Balance 

Additions 

Interest 

Total 

Land fill sites 

162 162 364 

- 

17 891 360 

180 053 724 

Employee benefit cost 

239 689 000 

11 777 188 

- 

251 466 188 

Provisions for staff leave 

62 053 483 

3 352 041 

- 

65 405 524 


463 904 847 

15 129 229 

17 891 360 

496 925 436 

Reconciliation of provisions - 2018 

Opening 

Balance 

Additions 

Interest 

Total 

Land fill sites 

9 661 698 

139 385 049 

13 115 617 

162 162 364 

Employee benefit cost 

222 916 000 

16 773 000 

- 

239 689 000 

Provisions for staff leave 

52 322 491 

9 730 992 

- 

62 053 483 


284 900 189 

165 889 041 

13 115 617 

463 904 847 

Non-current liabilities 


431 519 912 

401 851 364 

Current liabilities 



65 405 524 

62 053 483 



496 925 436 

463 904 847 


Provision For Landfill site. 

Provision for rehabilation of landfill sites relates to the legal obligation to restore and rehabilitate the Kriel Leeupoort and Phola 
landfill site used for waste disposal.The risks and uncertanties that inevitably soround many events and circumstances shall be 
taken into account in reaching the best estimate of provision. 

Risk describes variety of outcome.A risk adjustment may increase the amount at which a liability is measured.Caution is 
needed in making judgments under conditions of uncertainty,so that revenue or assets are not overstatement and expenses or 
liabilities are not understated.However,uncertainty does not justify the creation of excessive provisions or deliberate 
overstatement of liabilities.For example if the projected costs of a particularly adverse outcome are estimated on a prudent 
basis,that outcome is not then deliberately treated as more probable than is realistically the case.Care is needed to avoid 
duplicating adjustments for risk and uncertainties with consequent overstatement of a provision. 

Risk that was taken into account and the estimated affect on the discounting rate: 

1. The landfill site is fenced off. 

2. There are no weight bridge and no records are kept of vehicles entering the site. 

3. There is no control over waste types entering the site. This may lead that possible dangerous and hazarders material be 
dumped in the site that may lead to possible fines. 

4. During our inspection of the site, no traces of medical waste were found. 

5. The subject property is surrounded by farms. 

Quantification of the risk factors: 

1. The landfill site was fenced off. 

2. No records kept. 

3. Waste types. 

4. No medical waste. 

5. Surrounded by farms. 

Employee benefits Actuarial Method and assumptions 

Below we have summarised the reconciliation of the opening accrued liability as at the prior valuation date 30 June 2018 to the 
current valuation date of 30 June 2019. A projection for 30 June 2020 is also provided. 


30 June 2018 R’s 


30 June 2019 R’s 


53 









Emalahleni Local Municipality 

Annual Financial Statements for the year ended 30 June 2019 

Notes to the Annual Financial Statements 

Figures in Rand 2019 2018 


18. Provisions (continued) 


Opening accrued liability as at 

222,916,000 

239,689,000 

Current service cost 

21,422,000 

22,243,000 

Current interest cost 

15,637,000 

18,866,000 

Medical contributions subsidies for continuation pensioners 

-4,265,000 

-4,439,000 

Projected accrued liability 

255,710,000 

276,359,000 

Actuarial (gain)/loss over financial year 

-16,021,000 

-24,892,812 

Closing accrued liability 

239,689,000 

251,466,188 


The actual expense cost for the year ending 30 June 2019, and the net change in the accrued obligation over the financial year 
ending 30 June 2019 are determined as follows: 



R’s 

Current service cost 

22,243,000 

Current interest cost 

18,866,000 

Actuarial (gain)/loss 

-24,892,812 

Net expense recognised in income statement as at 30 June 2019 

16,216,188 

Medical contributions subsidies for continuation pensioners 

-4,439,000 

Net change in the accrued liability over the financial year ending 30 June 2019 

11,777,188 


It is important to note that the illustrated results are based on the valuation data supplied by Emalahleni and valuation 
assumptions applied on the data agreed with Emalahleni 

19. Payables from exchange transactions 


Trade payables 

3 335 462 717 

2 211 810 028 

Payments received in advanced 

111 006 796 

45 720 211 

Other creditors 

75 307 299 

30 226 047 

Retentions 

45 271 553 

46 320 202 

Market Agency 

259 447 

504 376 

Deposits Other 

38 239 693 

16 275 919 


3 605 547 505 

2 350 856 783 

20. Consumer deposits 

Water and electricity 

135 569 355 

121 362 931 

21. Revenue 

Service charges 

1 488 673 275 

1 520 262 984 

Rental of facilities and equipment 

10 374 053 

10 050 229 

Agency services 

38 425 745 

32 888 563 

Licences and permits 

3 250 668 

2 419 141 

Fair value adjustments 

56 297 

- 

Actuarial gains 

24 601 900 

16 021 000 

Other income 

17 485 888 

28 200 019 

Fees earned 

1 358 520 

651 978 

Interest received 

270 743 067 

226 581 592 

Dividends received 

107 443 

42 919 

Property rates 

476 565 331 

458 423 084 

Government grants & subsidies 

520 551 660 

473 783 200 

Public contributions and donations 

189 912 137 

15 238 712 

Fines 

273 826 824 

20 200 058 


3 315 932 808 2 804 763 479 


54 

























Emalahleni Local Municipality 

Annual Financial Statements for the year ended 30 June 2019 

Notes to the Annual Financial Statements 

Figures in Rand 2019 2018 

21. Revenue (continued) 


The amount included in revenue arising from exchanges of goods or 
services are as follows: 


Service charges 

1 488 673 275 

1 520 262 984 

Rental of facilities and equipment 

10 374 053 

10 050 229 

Agency services 

38 425 745 

32 888 563 

Licences and permits 

3 250 668 

2 419 141 

Other income 

17 485 888 

28 200 019 

Fees earned 

1 358 520 

651 978 

Interest revenue 

270 743 067 

226 581 592 

Dividends received 

107 443 

42 919 

The amount included in revenue arising from non-exchange transactions 
is as follows: 

Taxation revenue 

1 830 418 659 

1 821 097 425 

Property rates 

Transfer revenue 

476 565 331 

458 423 084 

Government grants & subsidies 

520 551 660 

473 783 200 

Public contributions and donations 

189 912 137 

15 238 712 

Fines 

273 826 824 

20 200 058 


1 460 855 952 

967 645 054 

22. Service charges 

Sale of electricity 

862 995 594 

825 596 287 

Sale of water 

387 244 266 

419 538 358 

Sewerage and sanitation charges 

123 326 036 

174 488 545 

Refuse removal 

115 107 379 

100 639 794 

23. Rental of facilities and equipment 

1 488 673 275 

1 520 262 984 

Premises 

Premises 

8 190 379 

7 841 253 

Theatre hire 

120 294 

170 838 

Venue hire 

853 401 

849 538 

Rental of furniture 

7 436 

13 962 


9 171 510 

8 875 591 

Garages and parking 

Rental of hangars 

870 

512 

Facilities and equipment 

Rental of equipment 

1 201 673 

1 174 126 


10 374 053 

10 050 229 


55 






Emalahleni Local Municipality 

Annual Financial Statements for the year ended 30 June 2019 


Notes to the Annual Financial Statements 


Figures in Rand 

2019 

2018 

24. Fines 

Building Fines 

385 529 

88 702 

Illegal Connections Fines 

758 834 

1 425 454 

Law Enforcement Fines 

77 015 

9 342 

Overdue Books Fines 

1 696 

7 010 

Municipal Traffic Fines 

272 603 750 

18 669 550 


273 826 824 

20 200 058 

25. Commission received 

Collection commission 

4 862 008 

2 763 527 

Fees - Prov : Monies 

33 563 737 

30 125 036 


38 425 745 

32 888 563 

26. Licences and permits 

Drivers licenses - Produba 

2 543 591 

2 124 679 

Flammable liquid licenses 

285 941 

143 849 

Hawkers association 

421 136 

150 613 


3 250 668 

2 419 141 

27. Sundry income 

Tender documents 

132 016 

441 746 

Building line relaxation 

4 889 361 

3 054 970 

SETA claims 

1 406 523 

1 078 794 

Unclaimed deposits 

3 504 406 

16 893 962 

Incidental income 

7 553 582 

6 730 546 


17 485 888 

28 200 018 

28. Fees earned 

Information 

1 335 318 

635 616 

Library books 

8 272 

9 897 

Parking 

14 930 

6 465 

29. Investment revenue 

1 358 520 

651 978 

Dividend revenue 

Listed financial assets - Local 

107 443 

42 919 

Interest revenue 

Interest charged on arrear accounts 

270 743 067 

226 581 592 


270 850 510 

226 624 511 


56 






Emalahleni Local Municipality 

Annual Financial Statements for the year ended 30 June 2019 

Notes to the Annual Financial Statements 

Figures in Rand 2019 2018 

30. Property rates 
Rates received 


Property rates 476 565 331 458 423 084 


Valuations 



Residential 

34 852 090 683 

34 597 413 943 

Commercial 

10 695 119 760 

9 860 027 400 

State 

977 812 800 

1 012 312 800 

Municipal 

2 140 369 400 

2 609 570 560 

Other (Agricultural,Mining,etc) 

5 514 667 200 

6 099 517 140 


54 180 059 843 54 178 841 843 


31. Grants and subsidies paid 



Other subsidies 

Grants and subsidies paid to the indigent 

18 905 377 

21 153 962 


57 






Emalahleni Local Municipality 

Annual Financial Statements for the year ended 30 June 2019 

Notes to the Annual Financial Statements 

Figures in Rand 2019 2018 


32. Government grants and subsidies 


Operating grants 


Equitable share 

325 

738 

000 

288 

802 

000 

Municipal Infrastructure Grant 

120 

967 

000 

110 

815 

000 

National Treasury(Fin.Man.Grant) 

2 

215 

000 

2 

145 

000 

Grant-Expanded Public Works Programme 

4 

231 

000 

1 

717 

000 

Grant-Department of Energy 

42 

000 

000 

50 

000 

000 

Grant-Human Settlement 

1 

835 

066 

10 

856 

446 

Grant-Capital Neigbourhood development grant 

10 

605 

000 

9 

447 

754 

Water service infrastructure grant 

12 

960 

594 



- 


520 

551 

660 

473 

783 

200 


Equitable Share 

In terms of the Constitution, this grant is used to subsidise the provision of basic services to indigent community members. 

All registered indigent are entitled to receive a monthly subsidy of receive a monthly subsidy of R 217 VAT inclusive - (2018 
R208), which is funded from the grant. 

Extended Publuc Works Programme Incentive 

Current-year receipts 4 231 000 1 717 000 

Conditions met - transferred to revenue (4 231 000) (1 717 000) 


This grant was used to improve service delivery in municipalities as part of the upgrading of informal and formal 
settlements.Included in the roads,sewerage.water and fencing votes. 


MIG Grant 


Current-year receipts 

Conditions met - transferred to revenue 


120 967 000 110 815 000 

(120 967 000) (110 815 000) 


This grant was used to construct roads.sewerage and water infrastructure.as part of the upgrading of informal and formal 
settlement areas. 


FMG Grant 

2 215 000 2 145 000 

(2 215 000) (2 145 000) 


Current-year receipts 

Conditions met - transferred to revenue 


This grant was used to fund expenditure to enhance National Treasury Budget Reform program. 


Municipal revenue enhancement 

Balance unspent at beginning of year 9 804 9 804 


This grant was used to install services to install services to new settlements. 


58 






Emalahleni Local Municipality 

Annual Financial Statements for the year ended 30 June 2019 

Notes to the Annual Financial Statements 

Figures in Rand 2019 2018 


32. Government grants and subsidies (continued) 


Human settlement grant 


Balance unspent at beginning of year 
Conditions met - transferred to revenue 

1 000 623 2 835 689 


2 835 689 13 692 135 

(1 835 066) (10 856 446) 


This grant was used to improve service delivery in municipalities as part of the upgrading of informal and formal 
settlements.Included in the roads,sewerage,water and fencing votes. 


Neighbourhood Development Partnership grant 


Balance unspent at beginning of year 

52 251 

9 500 000 

Balance unspent at beginning of year 

10 605 000 

- 

Conditions met - transferred to revenue 

(10 605 000) 

(9 447 749 ) 

Reverted back to National treasury 

(52 000) 

- 


251 

52 251 


This grant was used to improve service delivery in municipalities as pat of the upgrading of informal and formal settlements. 


Water service infrastructure grant 

Current-year receipts 

Conditions met - transferred to revenue 


20 000 000 
(12 960 594) 

7 039 406 


This grant was used to facilitate the planning and implementation of various water sanitation projects to accelerate backlog 
reduction and enhance the sustainability of services. 

33. Public contributions and donations 


Mayors donation 
Nkangala District Municipality 
Palesa Coal mining 
Westcoal Mining 


92 696 

11 410 483 
189 819 441 3 783 261 

44 968 


189 912 137 15 238 712 


59 






Emalahleni Local Municipality 

Annual Financial Statements for the year ended 30 June 2019 


Notes to the Annual Financial Statements 


Figures in Rand 

2019 

2018 

34. Employee related costs 

Basic 

522 678 000 

476 519 793 

Bonus 

36 442 361 

36 443 202 

Medical aid - company contributions 

49 973 575 

47 476 223 

UIF 

2 817 656 

2 781 660 

Leave pay provision charge 

10 681 482 

9 730 991 

Other short term benefit 

57 690 236 

50 961 503 

Pension fund contributions 

98 610 106 

91 147 993 

Overtime payments 

77 033 949 

62 859 296 

Housing benefits and allowances 

3 605 265 

3 833 533 

Contributions-Group insurance 

1 640 122 

1 418 089 

Current service costs 

22 243 000 

21 422 000 


883 415 752 

804 594 283 

Remuneration of municipal manager 

Annual Remuneration 

1 129 075 

1 439 893 

Cellphone Allowance 

48 000 

- 

Contributions to UIF, Medical and Pension Funds 

429 105 

104 978 

Travel allowance 

327 402 

764 248 


1 933 582 

2 309 119 

Remuneration of chief finance officer 

Annual Remuneration 

1 022 545 

962 733 

Cellphone Allowance 

36 000 

- 

Contributions to UIF, Medical and Pension Funds 

402 395 

321 978 

Tavel allowance 

640 796 

659 220 

Other 

72 000 

- 


2 173 736 

1 943 931 

Remuneration of Executive Director-Community Services 

Annual Remuneration 

841 655 

956 432 

Cellphone Allowance 

36 000 

- 

Contributions to UIF, Medical and Pension Funds 

464 327 

349 550 

Travel allowance 

657 453 

647 790 

Other 

2 245 

6 300 


2 001 680 

1 960 072 

Remuneration of executive directors-Corporate services 

Annual Remuneration 

1 165 476 

1 128 230 

Cellphone Allowance 

36 000 

- 

Contributions to UIF, Medical and Pension Funds 

349 463 

247 404 

Travel allowance 

657 453 

647 790 

Other 

5 930 

- 


2 214 322 

2 023 424 

Remuneration of executive director-Environmental services 

Annual Remuneration 

1 004 474 

1 126 218 

Cellphone Allowance 

36 000 

- 

Contributions to UIF, Medical and Pension Funds 

301 508 

179 764 

Travel allowance 

674 199 

662 781 


60 






Emalahleni Local Municipality 

Annual Financial Statements for the year ended 30 June 2019 


Notes to the Annual Financial Statements 


Figures in Rand 

2019 

2018 

34. Employee related costs (continued) 

Other 

5 117 

7 845 


2 021 298 

1 976 608 

Remeneration of executive director-infrastructure services 

Annual Remuneration 

845 478 

412 861 

Cellphone Allowance 

36 000 

- 

Contributions to UIF, Medical and Pension Funds 

501 462 

86 413 

Travel allowance 

168 000 

511 825 

Other 

26 183 

150 612 


1 577 123 

1 161 711 

Remuneration of executive director-Development planning 

Annual Remuneration 

670 955 

202 336 

Cellphone Allowance 

22 000 

- 

Contributions to UIF, Medical and Pension Funds 

332 842 

60 878 

Travel Allowance 

449 302 

218 430 

Other 

62 413 

62 778 


1 537 512 

544 422 

35. Remuneration of councillors 

Mayoral Committee Members 

17 080 881 

4 276 885 

Councillors 

6 245 352 

16 650 740 

Councillors’ pension contribution 

6 600 096 

5 997 376 


29 926 329 

26 925 001 

36. Depreciation and amortisation 

Property, plant and equipment 

281 921 791 

297 943 258 

Investment property 

1 724 754 

1 749 195 

Intangible assets 

1 377 175 

1 377 175 

37. Impairment of assets 

285 023 720 

301 069 628 

Impairment loss 

Property, plant and equipment 

2 327 614 

17 064 979 

38. Finance costs 

Eskom account 

400 319 242 

108 786 067 

Finance leases 

- 

390 027 

Long term lialibiliies 

6 935 384 

10 072 329 

Landfill sites 

1 251 290 

13 115 617 


408 505 916 

132 364 040 


61 






Emalahleni Local Municipality 

Annual Financial Statements for the year ended 30 June 2019 

Notes to the Annual Financial Statements 

Figures in Rand 2019 2018 


39. Debt impairment 

Bad debts 191 977 999 630 221 695 


The Calculation for bad debt provision is based on a payment ratio per debtor i.e total amounts paid in a year over or divided by 
a total bill in a year. 

a) P = (1-Pd) where P is the provision for bad debt 

b) Pd = bad debt provision Pmt/L*100 

Pmt equals to Total Payments in the financial year 
L equals to Total Levies in a financial year 

Special consideration to be given to bebtors with payment arrangement with regard to the risk of non-payment. 

40. Bulk purchases 


Electricity - Eskom 




969 264 553 

883 689 462 

Water 




79 062 600 

34 057 878 





1 048 327 153 

917 747 340 

Electricity losses 

Total 

Total sales 

Units 

Losses in rand 

% of 


purchases 


unaccounted 

value 

distribution 




for 


losses 

2019 

1 000 834 022 

589 985 800 

410 848 222 

230 414 269 

23,94 % 

2018 

975 818 971 

627 357 722 

348 461 249 

317 099 737 

35,71 % 


Water losses 

Total 

purchases 

Total sales 

Units 

unaccounted 

for 

Losses in rand 
value 

% of 

distribution 

losses 

2019 

43 309 775 

24 797 394 

11 644 899 

123 435 929 

27,00 % 

2018 

40 878 833 

24 566 217 

10 186 556 

84 039 087 

25,00 % 


41. Contracted services 



Outsourced Services 

Animal Care 

15 096 

17 333 

Burial Services 

64 138 

46 990 

Catering Services 

727 931 

418 345 

Cleaning Services 

133 776 

151 382 

Fire Services 

48 480 

50 310 

Meter Management 

10 857 122 

10 131 341 

Security Services 

17 576 679 

19 549 172 

Traffic Fines Management 

5 897 150 

- 

Water Takers 

112 

1 683 

Consultants and Professional Services 

Business and Advisory 

12 956 490 

9 722 302 

Infrastructure and Planning 

2 202 164 

256 142 

Laboratory Services 

143 643 

4 744 945 

Legal Cost 

23 461 274 

18 976 533 


62 








Emalahleni Local Municipality 

Annual Financial Statements for the year ended 30 June 2019 


Notes to the Annual Financial Statements 


Figures in Rand 

2019 

2018 

41. Contracted services (continued) 



Contractors 

Audio-visual Services 

9 500 

55 944 

Building 

10 884 

6 135 

Electrical 

4 848 337 

7 860 100 

Employee Wellness 

290 406 

442 245 

Event Promoters 

87 693 

65 611 

Gardening Services 

28 949 

64 855 

Inspection Fees 

5 039 229 

2 108 787 

Maintenance of Buildings and Facilities 

3 022 880 

2 442 369 

Maintenance of Equipment 

23 251 221 

14 864 075 

Maintenance of Unspecified Assets 

115 988 279 

136 052 226 

Medical Services 

991 

3 266 

Preservation/Restoration/Dismantling/Cleaning Serv 

- 

43 265 

Sewerage Services 

7 879 519 

6 180 918 


234 541 943 

234 256 274 

42. General expenses 

Advertising 

1 070 383 

734 893 

Assessment rates & municipal charges 

2 168 

520 380 

Auditors remuneration 

8 362 055 

6 940 121 

Bank charges 

8 221 854 

9 387 775 

Commission paid 

9 076 492 

156 895 

Computer expenses 

323 410 

5 127 579 

Entertainment 

708 789 

986 573 

Insurance 

16 231 197 

15 466 082 

Levies 

7 114 330 

6 457 809 

Motor vehicle expenses 

2 650 896 

2 725 760 

Fuel and oil 

13 909 893 

7 377 733 

Postage and courier 

2 903 948 

1 337 634 

Printing and stationery 

2 187 253 

1 965 222 

Protective clothing 

4 026 935 

3 005 206 

Royalties and license fees 

5 726 555 

3 424 958 

Subscriptions and membership fees 

8 411 350 

10 564 269 

Telephone and fax 

5 673 672 

13 133 523 

Transport and freight 

19 547 184 

18 100 796 

Training 

2 115 069 

2 296 152 

Travel - local 

1 188 166 

1 325 594 

Other expenses 

14 656 878 

18 088 899 

Material and provisions 

45 240 037 

32 588 164 

Landfill sites 

17 973 621 

- 

Workmens compensation 

10 166 

- 

Stipends 

4 275 

55 458 

Impairment of trafic fines 

25 042 779 

15 952 959 


222 379 355 

177 720 434 

43. Actual gains or losses 

Actuarial gains or losses 

24 601 900 

16 021 000 

44. Fair value adjustments 

Game Animals 

56 297 

(322 897) 

Investment 

- 

(142 344) 


56 297 

(465 241) 


63 






Emalahleni Local Municipality 

Annual Financial Statements for the year ended 30 June 2019 


Notes to the Annual Financial Statements 


Figures in Rand 

2019 

2018 

45. Auditors' remuneration 



Fees 

8 362 055 

6 940 121 

46. Operating surplus (deficit) 



Operating surplus (deficit) for the year is stated after accounting for the following: 



Operating lease charges 

Motor vehicles 



• Contractual amounts 

1 639 732 

737 721 

Equipment 

• Contractual amounts 

1 918 424 

1 778 488 

Plant and equipment 
• Contractual amounts 

334 159 

518 486 

Lease rentals on operating lease - Other 
• Contractual amounts 

19 447 724 

18 397 621 


23 340 039 

21 432 316 

Loss on sale of property, plant and equipment 

(18 632 602) 

(30 381 730) 

Impairment on property, plant and equipment 

2 327 614 

17 064 979 

Amortisation on intangible assets 

1 377 175 

1 377 175 

Depreciation on property, plant and equipment 

281 921 791 

297 943 258 

Depreciation on investment property 

1 724 754 

1 749 195 

Employee costs 

913 342 081 

831 519 284 

47. Commitments 



Capital commitments 



Already contracted for but not provided for 

• Property, plant and equipment 

249 812 711 

178 482 444 

Operational commitments 

• The municipality has entered into agrements with service providers for the 

provision of various services.At reporting date the municipality has outstanding 
operational commitments. 

152 213 572 

115 534 091 


During the 2017/18 financial year a finding was raised by the external auditors with regard to completeness and accuracy of the 
commitments disclosed for 2016/17 and 2017/18 the entire population was revisited for both years and the closing balance 
2017/18 was restated as follows : 

Capital Commitment - R 48 764 267 
Operational commitment R 227 039 503 


64 






Emalahleni Local Municipality 

Annual Financial Statements for the year ended 30 June 2019 


Notes to the Annual Financial Statements 


Figures in Rand 


2019 

2018 

48. Contingencies 




Forthwith is a list of possible liability claims 

Claim 

cause of action 

status of the 

where the oucome was unknown at 30 June 

amount 


outcome of 

2019 



the dispute 

LC Coetzee 

1 050 000 

Accident on Paul Sauer Street, 

Matter is 



on 15 October 2015, the Plaintiff 

pending until 



overtook a vehicle when she 

the RAF 



collided with another vehicle. 

Matter is 



The Plaintiff alleges that the 
Municipality has a duty to the 
following; Construct and 
maintain roads in such a way 
that they are safe for all users; 
provide and display speed limit 
signs indicating the correct 
speed limit; manage and 
operate all roads in a manner 
commensurate with their 

finalized 



design; and take appropriate 
steps to remove or limit danger 
on the roads. 


Dark fibre 

218 256 

Claim for damages as a result 

Matter is 



of the Plaintiffs cables being 

postponed to 



damaged due to the alleged 
negligence of the Defendants 
employees 

21 /01/2020 

Debbie Sutherland 

920 000 

Claim for damages as a result 

The matter is 



of the Plaintiff suffering injuries 

being 



when the vehicle she was 

defended and 



travelling in, collided with a 
pothole. 

still pending 

NS Sgudla obo Sbusiso Zwelibanzi Nkosi 

2 500 000 

Claim for damages as a result 

The matter is 



of a minor child playing at or 

being 



near a substation wherein the 

defended and 



minor child came into contact 

still pending 



with high voltage electricity and 
sustained severe electrical 




shock resulting in sever facial 
and bodily burns. 


PT Makwakwa obo Nthabiseng Pascaline Inematse 

2 500 000 

Claim for damages as a result 

The matter is 



of a minor child playing at or 

being 



near a substation wherein the 

defended and 



minor child came into contact 
with high voltage electricity and 
sustained severe electrical 

still pending 



shock resulting in sever facial 
and bodily burns. 


Relay Settings 

6 007 482 

Claim for outstanding payments 

The matter is 



as a result of goods supplied 

being 



and delivered. 

defended and 
still pending 

Sasol Gas 

3 334 111 

The Plaintiff alleges that due to 

The matter is 



Municipal employees 

being 



negligence in laying a water 

defended and 



pipe, damage was caused to 
their gas line. 

still pending 


65 






Emalahleni Local Municipality 

Annual Financial Statements for the year ended 30 June 2019 


Notes to the Annual Financial Statements 


Figures in Rand 


2019 

2018 

48. Contingencies (continued) 




Tiva Clement 

40 208 

On or about 26 July 2015 at or 
near the intersection of Main 
Streets and Elizabeth Avenue, 
Witbank, Plaintiff incurred 
damages to his motor vehicle 
when he drove over an allegedly 
unmarked island. 

The matter is 
being 

defended and 
still pending 

Witbank Abbatoir 

135 707 

The Plaintiff alleges that on or 
aout the 19 and 23 of February 
2007 the Municipality 
deliberately interrupted water 
supply to the abbattoir. As a 
result of same,the Plaintiff could 
not conduct normal business 
and subsequently incurred 
damages. 

The matter is 
being 

defended and 
still pending 

Nomgqibelo Annah Ntuli 

2 650 000 

Claim for damages as a result 
of the Plaintiff being injured 
when she fell into an uncovered 
drain 

The matter is 
being 

defended and 
still pending 

MP Kleynhans 

9 600 000 

Claim for damages as a result 
of failure by the Municipality to 
repair potholes. The Plaintiff 
broke his spinal cord while 
driving his motor bike and 
allegedly fell into a pothole 

The matter is 
being 

defended and 
still pending 

Martha Mthombeni Klaas 

30 000 

The Red Ants (Service Provider 
to the Municipality) demolished 
the Applicant's property. As a 
result, she is suing the 

Municipality for the damages 

The matter is 
being 

defended and 
still pending 

Track Optimum 

3 000 000 

Claim for outstanding payments 
of invoices for services 
rendered, in the provision of 
security services to the 
Municipality 

The matter is 
being 

defended and 
still pending 

MM Lesoalo 

13 632 

Vehicle damage due to 
municipality gate mulfuctioned 

The matter is 
being 

defended and 
still pending 

K Wepener 

11 866 

Vehicle damaged by pothole 

The matter is 
being 

defended and 
still pending 

H R Peterson 

3 348 100 

Vehicle damaged by pothole 

The matter is 
being 

defended and 
still pending 

Sibanyoni 

27 054 

Vehicle damaged by pothole 

The matter is 
being 

defended and 
still pending 


35 386 416 


49. Related parties 

There were no related party transactions identified during the course of the 2019 financial year other than those disclosed in 
note 34 (Remuneration of executive directors) -35. 


66 






Emalahleni Local Municipality 

Annual Financial Statements for the year ended 30 June 2019 

Notes to the Annual Financial Statements 

Figures in Rand 2019 2018 


50. Change in estimate 
Property, plant and equipment 

During the 2019 financial year management has taken a decision to change the useful life of some assets due to a change in 
their current condition. The net impact of the change is as follows : 



Depreciation 

30 June 2018 

Adjustment 
due to a 
change in 
accounting 
estimate 

Total 

Electricity 

43 055 

(17 229) 

25 826 

Roads and storm water 

19 669 259 

(8 150 747) 

11 518 512 

Sewerage 

303 309 

(138 777) 

164 532 

Investment property 

1 825 296 

(389 149) 

1 436 147 


21 840 919 

(8 695 902) 

13 145 017 


51. Prior period errors 

Presented below are those items contained in the statement of financial position,statement of financial perfomance and cash 
flow statement that have been affected by prior-year adjustments. 


67 






Emalahleni Local Municipality 

Annual Financial Statements for the year ended 30 June 2019 

Notes to the Annual Financial Statements 

Figures in Rand 2019 2018 


51. Prior period errors (continued) 

Debt impairment 

During the audit of 2018 financial year it was identified that the reconciliation for impairment in note number 13 on the annual 
financial statements differed from the expensed debt impairment recognised in the statement of financial performance by R98 
434 128 which resulted into debt impairment being understated and receivables overstated. 

Property,plant and equipment 

During the financial year management management discovered Gains during the physical verification on certain classes of 
Property, Plant and Equipment. The above was corrected retrospectively. Furthermore, landfill sites were not correctly 
accounted for during the prior years. 

Payables from exchange transactions 

During financial year under review it was identified that payables for audit fees were recorded under other payables instead of 
trade payables,therefore a reclassification of an amount of R2 114 624.87 was done from other payables to trade payables. 
During the 2015/16,2016/17 and 2017/18 financial year an audit finding was raised with regard to trade payables balances that 
could not be confirmed due to limitation of scope,during 2018 confirmations were requested from creditors of which only a 
portion of the balance was confirmed and the balance of R741 146 026.11 could not be confirmed.A write off was approved by 
council during 2018/19 based on the requirements of the Prescription Act,Act 68 of 1969 as a result trade payables closing 
balance for 2017/18 were restated and the related expenses were written off through the accumulated surplus. 

During the current year under review it was identified that invoices relating to the prior years from different suppliers were not 
accrued and incorrect allocation as a results payables from exchange transactions were understated and expenditure were 
understated by R3 185 375.13. 

Consumer debtors 

During 2018/19 financial year management identified that there were transactions which were double receipted during 2017/18 
as a results cash and cash equivalent was overstated and trade receivables understatedDuring 2018/19 financial year 
management identified that there was an over banking by the cashiers during 2017/18 as a results cash and cash equivalent 
overstated and trade receivable understated.During 2018/19 financial year management identified that there were debit orders 
which were overstated and also there were debit orders returned by the bank as a results cash and cash equivalent overstated 
and trade and other receivable understated.During 2018/19 management identified an error on the transactions accounted 
for,for the easypay payments as a results cash and cash equivalent was overstated,VAT output for consumer levies 
understated,trade receivables understated,non-exchange receivables understated,VAT control input and output misstated,the 
output VAT received from debtors misstated aswell as payments received in advance from consumer debtors overstated. 

Cash and cash equivalent 

During 2018/19 financial year management identified that there was a difference on the cash on hand recognised during 
2017/15 as a results the cash on hand was overstated.During 2018/19 financial year management identified that there were 
transactions which were double receipted during 2017/18 as a results cash and cash equivalent was overstated and trade 
receivables understated.During 2018/19 financial year management identified that there was an over banking by the cashiers 
during 2017/18 as a results cash and cash equivalent overstated and trade receivable understated. During 2018/19 financial 
year management identified that there were debit orders which were overstated and also there were debit orders returned by 
the bank as a results cash and cash equivalent overstated and trade and other receivable understated.During 2018/19 
management identified an error on the transactions accounted for,for the easypay payments as a results cash and cash 
equivalent was overstated,VAT output for consumer levies understated,trade receivables understated,non exchange 
receivables understated,VAT control input and output misstated,the output VAT received from debtors misstated aswell as 
payments received in advance from consumer debtors overstated. 

VAT Receivables 

During 2018/19 management identified an error on the transactions accounted for,for the easypay payments as a results cash 
and cash equivalent was overstated,VAT output for consumer levies understated,trade receivables understated,non-exchange 
receivables understated,VAT control input and output misstated,the output VAT received from debtors misstated aswell as 
payments received in advance from consumer debtors overstated. 

Finance lease obligations 

During 2018/19 financial year assets verification management identified new leased assets that were obtained in 2017/18 
however they were not accounted for as a results the leased assets were understated and the finance lease obligation 
understated by R550 798. 

Employee related costs. 

Correction of error for the provision for 13th cheque bonus amounting to R4 345 256 not paid as 30 June 2018 as a results the 


68 






Emalahleni Local Municipality 

Annual Financial Statements for the year ended 30 June 2019 

Notes to the Annual Financial Statements 

Figures in Rand 2019 2018 


51. Prior period errors (continued) 

employee cost for 2017/18 was understated and the provision was understated. 

Depreciation and amortisation 

During 2018/19 financial year management management discovered Gains during the physical verification on certain classes 
of Property, Plant and Equipment which resulted into increase on the depreciation and amortisation previously reported. The 
above was corrected retrospectively 

Finance costs 

During August 2019 management received invoices for Interest on long outstanding invoices for 2016/17 and 2017/18 from 
department of water affairs as a result the finance cost was understated and the payables were understated with an amount of 
R2 508 721. 

Contracted services 

During 2018/19 financial year management identified that there were maintenance of unspecified assets which were incorrectly 
accounted for during 2017/18 financial year as a results the expenditure for contracted services was overstated. 

General expenses 

During 2018/19 financial year management identified that an invoice for SALGA membership was received in advance during 
2016/17 financial year which related to the 2017/18 membership fees however fees for three(3) months were recognised in 
2016/17 as a result of general expenses for 2017/18 were understated and payables understated. 

Public contribution and donations 

During 2018/19 assets verification management identified assets which were donated but in 2017/18 financial year however 
they were not accounted for as a results the public contribution and donations was understated, related assets understated as 
well as the depreciated for the related assets. 

Interest revenue 

During 20181/19 financial year management identified that there was interest earned on the collateral investments amounting 
to R17 398.26 for 2017/18 financial year however it was not recognised during 2017/18 as a result the interest on investments 
was understated. 

52. Prior-year adjustments 

Presented below are those items contained in the statement of financial position, statement of financial performance and cash 
flow statement that have been affected by prior-year adjustments: 

Statement of financial position 

2018 



Note 

As previously 

Correction of 

Restated 



reported 

error 


Consumer debtors 

13 

1 853 076 539 

2 309 502 

1 855 386 041 

Cash and cash equivalent 

14 

12 404 659 

(5 926 501) 

6 478 158 

Property plant and equipment 

5 

5 589 262 745 

(87 658 406) 

5 501 604 339 

Payables from exchange transactions 

19 

3 083 358 861 

(732 502 079) 

2 350 856 782 

VAT receivables 

12 

138 377 841 

(55 460) 

138 322 381 

Finance lease obligation 

15 

1 583 658 

898 282 

2 481 940 



0 678 064 303 

(822 934 662) 

9 855 129 641 


Statement of financial performance 


69 






Emalahleni Local Municipality 

Annual Financial Statements for the year ended 30 June 2019 

Notes to the Annual Financial Statements 

Figures in Rand 2019 2018 


52. Prior-year adjustments (continued) 
2018 



Note 

As previously 

Correction of 

Restated 



reported 

error 


Employee costs 

34 

(800 249 027) 

(4 345 256) 

(804 594 283) 

Depreciation and amortisation 

36 

(279 591 866) 

(21 477 762) 

(301 069 628) 

Finance costs 

38 

(129 855 319) 

(2 508 721) 

(132 364 040) 

Debt impairment 

39 

(531 787 567) 

(98 434 128) 

(630 221 695) 

Contracted services 

41 

(235 046 274) 

790 000 

(234 256 274) 

General expenses 

42 

(175 907 886) 

(1 812 548) 

(177 720 434) 

Public contributions and donations 

33 

11 488 253 

3 750 459 

15 238 712 

Interest received 

29 

226 564 194 

17 398 

226 581 592 

Surplus for the year 


[1 914 385 492) 

(124 020 558) 

[2 038 406 050) 


Reclassifications 


The following reclassifications adjustment occurred: 

Receivable from non - exchange transactions 

During the 2018 financial year management reclassified transactions which where erroneously classified as receivables 
from non- exchange transactions instead of receivables from exchange transactions 


Receivable from other exchange transactions 
Receivables from non- exchange transactions 


As previously 
reported 

39 877 886 
23 159 644 


Reclassification 

10 736 573 
(10 736 573) 


Restated 

50 614 459 
12 423 071 


63 037 530 


63 037 530 


53. Risk management 
Liquidity risk 

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


Credit risk 


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

Consumer debtors comprise a widespread customer base.The municipality manages its credit risk through payment of deposits 
disconnection in case of non-payment. 

Financial assets exposed to credit risk at year end were as follows: 

Financial instrument 2019 2018 

Trade and other receivables 293 106 156 269 153 503 


70 




Emalahleni Local Municipality 

Annual Financial Statements for the year ended 30 June 2019 

Notes to the Annual Financial Statements 

Figures in Rand 2019 2018 


54. Going concern 

We draw attention to the fact that at 30 June 2019, the municipality had current year deficit of R 51 370 991 and that the 
municipality's liabilities exceed its assets by R 635 459 925.This is mainly due to municipally struggling to collect moneys 
owed to its by its customers,leading to serious cash flow problems being experienced,hence difficulties in selling accounts on 
time. 

The annual 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 and settlement of 
liabilities, contingent obligations and commitments will occur in the ordinary course of business.This is strengthened by the fact 
that the municipality,it terms of legislation.has the power to levy rates which guarantees continued generation of revenue.The 
municipality is implementing various initiatives to improve the current situation. 


55. Unauthorised expenditure 


Opening balances 

860 427 591 

834 460 077 

Unauthorised expenditure current year 

518 787 643 

222 041 583 

Expenditure authorised during the year 

(860 427 591) 

(196 074 069) 


518 787 643 

860 427 591 

56. Fruitless and wasteful expenditure 




Opening balance 

406 746 289 

296 573 106 

Claims 

520 469 

1 185 852 

Write-off 

(406 746 289) 

- 

Eskom interest 

391 073 041 

105 348 820 

SARS interest and penalties 

- 

2 745 861 

Interest accrued on late payments of suppliers 

696 197 

892 650 

Department of water 

8131 196 

- 

Closing balance 

400 420 903 

406 746 289 

The municipality restated the 2017/18 fruitless and wasteful expenditure this was due to invoices from department of water 
which relate to 2016/17 and 2017/18 financial year which where received in the current year. 

57. Irregular expenditure 


Opening balance 

323 607 074 

231 390 093 

Add:irregular Expenditure-current year 

88 854 893 

92 216 981 

Closing balance 

412 461 967 

323 607 074 

Details of deviations - current year 

Strip and Quote 

9 720 081 


Emergencies 

2 145 829 


Sole Suppliers 

3 337 774 



15 203 684 


71 






Emalahleni Local Municipality 

Annual Financial Statements for the year ended 30 June 2019 

Notes to the Annual Financial Statements 

Figures in Rand 2019 2018 


58. Additional disclosure in terms of Municipal Finance Management Act 
Contributions to organised local government 


Current year subscription/fee 

8 247 790 

8 037 680 

Amount paid - current year 

(8 247 790) 

(8 037 680) 

Audit fees 

Opening balance 

248 377 

6 520 987 

Current year subscription / fee 

8 387 556 

7 590 817 

Amount paid - current year 

(8 412 902) 

(8 432 064) 

Credit note 

- 

(5 431 363) 


223 031 

248 377 

PAYE and UIF 

Current year subscription / fee 

152 348 482 

131 315 799 

Amount paid - current year 

(152 348 482) 

(131 315 799) 

Pension and Medical Aid Deductions 

Current year subscription / fee 

226 299 137 

135 454 854 

Amount paid - current year 

(226 299 137) 

(135 454 854) 


- 

- 


72 






Emalahleni Local Municipality 

Annual Financial Statements for the year ended 30 June 2019 

Notes to the Annual Financial Statements 

Figures in Rand 2019 2018 


58. Additional disclosure in terms of Municipal Finance Management Act (continued) 
Councillors' arrear consumer accounts 

The following Councilors had arrear accounts outstanding for more than 90 days at 30 June 2019: 


30 June 2019 

Outstanding 

Outstanding 

Total 


less than 90 

more than 90 

R 


days 

days 



R 

R 


CLLR EN Mazibulo 

- 

6 544 

6 544 

CLLR MB Jiyane 

- 

8 603 

8 603 


- 

15 147 

15 147 

30 June 2018 

Outstanding 

Outstanding 

Total 


less than 90 

more than 90 

R 


days 

days 



R 

R 


CLLR D M Skhosana 

4 006 

- 

4 006 

CLLR TT Mathebula 

6 449 

- 

6 449 

CLLR NL Mofokeng 

295 

- 

295 

CLLR MC Hilton 

1 546 

- 

1 546 

CLLR P L Debelia 

587 

- 

587 

CLLR PN Mazibulo 

5 778 

- 

5 778 

CLLR VLChembe 

203 

- 

203 


18 864 

- 

18 864 


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

59. Budget differences 

Material differences between budget and actual amounts 

The excess of actual expenditure over the final budget of 10% is detailed below. 


73 






Emalahleni Local Municipality 

Annual Financial Statements for the year ended 30 June 2019 


Notes to the Annual Financial Statements 


Figures in Rand 


2019 2018 

59. Budget differences (continued) 



Descriptions 

% 

Reasons 

Rental of facilities and equipment 

321.2% 

Over budgeted during adjustment budget,due to 
revenue that was incorrectly included under rental 
of facilities instead of other income. 

Licence and permits 

87.6% 

Under budgeted as additional licence fees were 
collected during the year 

Commision received 

14001% 

Under budgeted as additional licence fees were 
collected during the year 

Sundry income 

30.3% 

The under budgeting was due to consumer that 
were not paying their accounts.There increase is 
more than it was initialy anticipated. 

Dividends received 

100 % 

There was no budget allocations due to 
unpredictability of market movements. 

Public contributions and donations 

705.6% 

This is due to the caft that most of the projects 
were not recognisede as revenue as they are still 
work in progress 

Fines 

845.2% 

Additional revenue realised due to l-GRAP 

Finance cost 

61.6% 

The finance cost has increased due to Eskom debt 
has escalated more than initially anticipated. 

Lease rentals on operating lease 

100 % 

Reclassification on mSCOA .It was 
budgeted for under general expenses. 

Debt impairment 

58.9% 

This wasdue to a re-assessment of our debtors 
book. 

Contracted services 

12 .0% 

Under budgeted due to mSCOA 
reclassifications.Other line items were budgeted 
for under other expenditure. 

Grants and subsidies 

37.3% 

Indigent register was reduced due to verification 
which denied some of the consumer from being 
indigent. 

Impairment loss 

100 % 

Under budgeted due to MSCOA reclassifications, 
other line items were budgeted for under other 
expenditure. 

Depreciation and amortisation 

12.7% 

This is due to the re-assessment of useful live 

Fair value adjustments 

100 % 

There was no budget allocations due to 
unpredictability of the nature of the transaction. 


74