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UMZINYATHI DISTRICT MUNICIPALITY 

Annual Financial Statements 
for the year ended 30 June 2019 



Umzinyathi District Municipality 

Annual Financial Statements for the year ended 30 June 2019 

General Information 


Nature of Business and Principal Activities The uMzinyathi District Municipality is a municipality that is operating within its 

constitutional mandate as a water service authority in the form of service 
delivery to the citizens of South Africa. 


Mayoral Committee 

Mayor 

Cllr Alderman PMS Ngubane 

Deputy Mayor 

CllrNG Mdlalose 

Speaker 

Cllr FJ Sikhakhane 

Executive Committee 

Cllr LWS Ngubane 

Chief Whips 

Cllr LG Mabaso 

Cllr MS Yengwa 

Cllr BP Madondo 

MPAC Chairperson 

Cllr RN Ngubane 

Cllr XS Xaba 

Councillors 

CllrLN Dladla 


Cllr NC Xaba 

Cllr BS Chambule 

Cllr CZ Mbatha 

Cllr BP Ngcobo 

Cllr B Mthethwa 

CllrSK Radebe 

Cllr TM Mahaye 

CllrTH Mchunu 


Cllr EM Mkwanazi 
Cllr PM Ngobese 
Cllr LC Moloi 
Cllr TJ Motloung 
CllrFE Khumalo 
CllrTC Ngubane 
Cllr IL Shabalala 
Cllr PS Hlophe 

Grading of Local Authority 4 

Accounting Officer Mr LH Mthembu (Acting Municipal Manager) 


Chief Financial Officer (CFO) 


Mrs NT Mkhwanazi 


Registered Office 

Business Address 

Postal Address 

Telephone Number 

Website 

Email 


39 Victoria Street 
Princess Magogo Building 
Dundee 
3000 

39 Victoria Street 
Princess Magogo Building 
Dundee 
3000 

PO Box 1965 

Dundee 

3000 

034 219 1500 
www.umzinyathi.co.za 
rc3@umzinyathi.gov. za 


1 



Umzinyathi District Municipality 

Annual Financial Statements for the year ended 30 June 2019 

General Information 


Bankers 


First National Bank 


Auditors 


Auditor General of South Africa 


2 





Umzinyathi District 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 

Statement of Financial Position 7 

Statement of Financial Performance 8 

Statement of Changes in Net Assets 9 

Cash Flow Statement 10 

Statement of Comparison of Budget and Actual Amounts 11-12 

Accounting Policies 13-36 

Notes to the Annual Financial Statements 37 - 70 


3 





Umzinyathi District Municipality 

Annual Financial Statements for the year ended 30 June 2019 

Index 


ABSA 

Amalgamated Banks of South Africa 

AG 

Auditor General of South Africa 

BTO 

Budget and Treasury Office 

COGTA 

Cooperative Governance and Traditional Affairs 

CPI 

Consumer Price Index 

DBSA 

Development Bank of Southern Africa 

DM 

District Municipality 

DORA 

Division of Revenue Act 

DPW 

Department of Public Works 

DWS 

Department of Water and Sanitation 

EPWP 

Expanded Public Works Programme 

FMCMM 

Financial Management Capability Maturity Model 

FMG 

Financial Management Grant 

FNB 

First National Bank 

GRAP 

Generally Recognised Accounting Practice 

HIV 

Human Immune-Deficiency Virus 

IDP 

Integrated Development Plan 

JSE 

Johannesburg Stock Exchange 

KZN 

KwaZulu-Natal 

LED 

Local Economic Development 

LGSETA 

Local Government Sector Education and Training Authority 

LM 

Local Municipality 

MEC 

Member of Executive Committee 

MFMA 

Municipal Finance Management Act 

MIG 

Municipal Infrastructure Grant 

MPAC 

Municipal Public Accounts Committee 

MSCOA 

Municipal Standard Chart of Accounts 

NRA 

Normal Retirement Age 

PAYE 

Pay As You Earn 

PFMA 

Public Finance Management Act 


4 




Umzinyathi District Municipality 

Annual Financial Statements for the year ended 30 June 2019 

Index 


RMB 

Rand Merchant Bank 

RRAMS 

Rural Road Asset Management Systems 

SARS 

South African Revenue Service 

SCM 

Supply Chain Management 

SDL 

Skills Development Levy 

UIF 

Unemployment Insurance Fund 

VAT 

Value Added Tax 

WTW 

Water Treatment Works 

WSDP 

Water Services Development Plan 


5 





Umzinyathi District Municipality 

Annual Financial Statements for the year ended 30 June 2019 

Accounting Officer's Responsibilities and Approval 


The uMzinyathi District Municipality is situated at Princess Magogo Building, 39 Victoria Street, is a grade 4 
Municipality established in terms of section 12 (1) of the Municipal Structures Act, No.117 and published in terms 
of Provincial Government Notice 346 on the 19 September 2000. The Local Government Operations of the 
Municipality are assigned by Section 156 and 229 of the South African Constitution and defined specifically in 
terms of section 83 of the Municipal Structures Act. 

The accounting officer is required by the Municipal Finance Management Act (No. 56 of 2003), to maintain 
adequate accounting records and is responsible for the content and integrity of the financial statements and related 
financial information included in this report. It is the responsibility of the accounting officerto ensure that 
the 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 financial statements and were given unrestricted access to all financial 
records and related data. The financial statements have been prepared in accordance with Standards of Generally 
Recognized Accounting Practice (GRAP) including any interpretations, guidelines and directives issued by the 
Accounting Standards Board. 

The financial statements are based on 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 places considerable importance on maintaining a strong control environment. 
To enable the accounting officerto meet these responsibilities, the accounting officersets 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 and effective accounting procedures. 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 minimize it 
by ensuring that appropriate infrastructure, controls, systems and ethical behaviour are applied and managed within 
predetermined procedures and constraints. 

The accounting officer has reviewed the municipality’s cash flow forecast for the year ending 30 June 2020 and in 
the light of this review and the current financial position, he is satisfied that the municipality has or has access to 
adequate resources to continue in operational existence for the foreseeable future. 

The municipality is largely dependent on the Provincial and National Government for continued funding of 
operations. The financial statements are prepared on the basis that the municipality is a going concern and that the 
Provincial and National Governments have neither the intention nor the need to liquidate or curtail materially the 
scale of funding of the municipality. 

The annual financial statements set out on pages 7 to 70, 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: 


j e^_— 

Mr LH Mthembu 
Acting Accounting Officer 


6 






Umzinyathi District 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 

3 

11 519 178 

1 227 505 

Receivables from Non-Exchange Transactions 

4 

12 016 591 

11 759 698 

VAT Receivable 

5 

16 159 143 

15 194 852 

Receivables from Exchange Transactions 

6 

57 165 089 

71 752 005 

Cash and Cash Equivalents 

7 

56 806 983 

150 841 372 



153 666 984 

250 775 432 

Non-Current Assets 




Infrastructure 

8 

2 044 405 353 

1 833 528 367 

Investment Property 

9 

771 725 

810 393 

Property, Plantand Equipment 

10 

105 967 910 

100 991 464 

Intangible Assets 

11 

4 124 965 

2 465 371 

Interest in Joint Venture 

12 

254 522 745 

264 572 884 



2 409 792 698 

2 202 368 479 

Total Assets 


2 563 459 682 

2 453 143 911 

Liabilities 




Current Liabilities 




Payables From Exchange Transactions 

13 

164 949 007 

134 756 999 

Consumer Deposits 

14 

451 514 

459 131 

Unspent Conditional Grants and Receipts 

15 

- 

37 725 288 

Provisions 

16 

14 107 522 

11 992 076 



179 508 043 

184 933 494 

Non-Current Liabilities 




Employee Benefit Obligation 

17 

24 164 319 

23 621 000 

Long Term Liability 

18 

64 191 401 

64 191 401 



88 355 720 

87 812 401 

Total Liabilities 


267 863 763 

272 745 895 

Net Assets 


2 295 595 919 

2 180 398 016 

Reserves 




Other Reserves 


698 434 731 

698 434 731 

Accumulated Surplus 


1 597 161 188 

1 481 963 285 

Total Net Assets 


2 295 595 919 

2 180 398 016 


7 





Umzinyathi District 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 

19 

62 418 462 

59 364 617 

Rental of Facilities and Equipment 

20 

468 857 

411 174 

Interest Earned on Outstanding Debtors 

21 

18 771 234 

14 116 532 

Other Income 

22 

1 227 862 

669 232 

Interest Earned on Investments 

23 

11 309 242 

16 934 290 

Gain on Disposal of Assets 

10 

- 

470 750 

Total Revenue From Exchange Transactions 

Revenue From Non-Exchange Transactions 


94 195 657 

91 966 595 

Gains and Donations Received 

Actuarial Gain from Post Retirement 

17 

2 827 681 

4 718 000 

Transfer Revenue 

Government Grants and Subsidies 

24 

630 275 701 

599 145 561 

Total Revenue From Non-Exchange Transactions 


633 103 382 

603 863 561 

Total Revenue 

25 

727 299 039 

695 830 156 

Expenditure 

Employee Related Costs 

26 

(142 205 576) 

(128 871 686) 

Remuneration of Councillors 

27 

(5 111 664) 

(5 259 653) 

Depreciation and Amortisation 

28 

(94 331 424) 

(90 764 887) 

Finance Costs 

29 

(73 424) 

(129 615) 

Lease Rentals on Operating Lease 

30 

(619 326) 

(806 165) 

Provision for Debt Impairment 

31 

11 259 684 

(67 384 645) 

Bad Debts Written Off 

32 

(93 636 030) 

- 

Post Retirement Benefits 

17 

(3 371 000) 

(4 117 000) 

Bulk Purchases 

33 

(16 624 231) 

(16 089 868) 

Contracted Services 

34 

(104 633 802) 

(202 736 198) 

Loss on Disposal of Property, Plant and Equipment 

10 

(8 266) 

- 

Loss on Disposal of Intangible Assets 

11 

(1 899) 

- 

Share on Deficit from Joint Venture 

12 

(10 050 139) 

(30 655 670) 

General Expenditure 

35 

(152 694 038) 

(53 987 739) 

Total Expenditure 


(612 101 135) 

(600 803 126) 

Surplus For The Year 


115 197 903 

95 027 029 


8 






Umzinyathi District Municipality 

Annual Financial Statements for the year ended 30 June 2019 

Statement of Changes in Net Assets 

Reserves Accumulated Total Net 

Figures in Rand Surplus Assets 


Opening Balance as previously reported 

Adjustments 

Prior Year Adjustments 

Balance at 01 July 2017 as restated* 

Changes in Net Assets 
Restated Surplus for The Year 

Total Changes 

Restated Balance at 01 July 2018 

Changes in Net Assets 
Surplus for The Year 

Total Changes 

Balance at 30 June 2019 

Note(s) on Prior Year Adjustments 


698 434 731 1 483 774 148 2 182 208 879 


- (96 837 892) (96 837 892) 


698 434 731 

1 386 936 256 

2 085 370 987 

- 

95 027 029 

95 027 029 

- 

95 027 029 

95 027 029 

698 434 731 

1 481 963 285 

2 180 398 016 

- 

115 197 903 

115 197 903 

- 

115 197 903 

115 197 903 

698 434 731 

1 597 161 188 

2 295 595 919 

36 


9 






Umzinyathi District Municipality 

Annual Financial Statements for the year ended 30 June 2019 

Cash Flow Statement 

Figures in Rand 


Cash Flows from Operating Activities 
Receipts 

Sale of Goods and Services 
Government Grants 
Interest Income 
Other Receipts 


Payments 

Employee Cost 
Suppliers 
Finance Cost 


Net Cash flows from Operating Activities 

Cash Flows from Investing Activities 

Purchase of Property, Plant and Equipment 
Proceeds from Sale of Property, Plant and Equipment 
Purchase of Intangible Assets 
Purchase of Infrastructure Assets 

Net Cash Flows from Investing Activities 

Cash Flows from Financing Activities 

Repayment of Long Term Liabilities 
Finance Costs 

Net Cash flows from Financing Activities 

Net increase in Cash and Cash Equivalents 

Cash and cash equivalents at the beginning of the year 

Cash and cash equivalents at the end of the year 


Note(s) 

2019 

2018 

Restated* 


191 854 313 

40 925 179 


592 502 000 

616 823 347 


11 309 242 

16 934 290 


- 

1 036 375 


795 665 555 

675 719 191 

29 

(138 846 182) 
(438 964 391) 
(73 424) 

(133 619 577) 
(208 877 926) 
(42 716) 


(577 883 997) 

(342 540 219) 

38 

217 781 558 

333 178 972 


10 

(16 100 676) 

(10 832 462) 

10 

- 

465 581 

11 

(1 893 456) 

(374 626) 

8 

(293 821 815) 

(239 690 959) 


(311 815 947) 

(250 432 466) 


- 

(669 155) 

- 

(86 899) 

- 

(756 054) 

(94 034 389) 

81 990 452 

150 841 372 

68 850 920 

56 806 983 

150 841 372 


10 






Umzinyathi District 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 

60 509 000 

(7 600 000) 

52 909 000 

62 418 462 

9 509 462 

15% 

Rental of facilities and equipment 

548 712 

- 

548 712 

468 857 

(79 855) 

- 17% (a) 

Interest earned- outstanding 
debtors 

13 281 000 

- 

13 281 000 

18 771 234 

5 490 234 

29% (b) 

Other income 

20 700 

264 372 

285 072 

1 227 862 

942 790 

77% (c) 

Interest received - investment 

14 509 211 

- 

14 509 211 

11 309 242 

(3 199 969) 

- 28% (d) 

Total revenue from exchange 
transactions 

88 868 623 

(7 335 628) 

81 532 995 

94 195 657 

12 662 662 


Revenue from non-exchange 
transactions 







Taxation revenue 

Actuarial Gain 

_ 

_ 

- 

2 827 681 

2 827 681 

100% (e) 

Transfer revenue 

Government grants & subsidies 

613 437 000 

15 927 000 

629 364 000 

630 275 701 

911 701 

0% 

Total revenue from non- 
exchange transactions 

613 437 000 

15 927 000 

629 364 000 

633 103 382 

3 739 382 


Total revenue 

702 305 623 

8 591 372 

710 896 995 

727 299 039 

16 402 044 


Expenditure 

Employee Related Costs 

(156 369 000) 

19 212 000 

(137 157 000) 

(142 205 576) 

(5 048 576) 

4% 

Remuneration of Councillors 

(4 853 000) 

(318 000) 

(5 171 000) 

(5 111 664) 

59 336 

-1% 

Depreciation and Amortisation 

(41 374 000) 

- 

(41 374 000) 

(94 331 424) 

(52 957 424) 

56% (f) 

Finance costs 

- 

- 

- 

(73 424) 

(73 424) 

100% (g) 

Lease rentals on Operating 

Lease 

(840 000) 

232 392 

(607 608) 

(619 326) 

(11 718) 

2% 

Provision for Bad Debts 

(12 606 172) 

- 

(12 606 172) 

11 259 684 

23 865 856 

212% (h) 

Bad debts written off 

- 

- 

- 

(93 636 030) 

(93 636 030) 

100% (i) 

Post Retirement Benefits 

(8 055 996) 

3 946 740 

(4 109 256) 

(3 371 000) 

738 256 

-22% (i) 

Bulk Purchases 

(18 400 000) 

2 147 000 

(16 253 000) 

(16 624 231) 

(371 231) 

2% 

Contracted Services 

(86 623 000) 

(13 741 000) 

(100 364 000) 

(104 236 804) 

(3 872 804) 

4% 

Share in Profit of Joint Venture 

- 

- 

- 

(10 050 139) 

(10 050 139) 

100% (j) 

Loss on disposal of assets 

- 

458 163 036 

458 163 036 

(10 165) 

(458 173 201) 

+ 100%(k) 

General Expenses 

(104 666 000) 

(35 855 000) 

(140 521 000) 

(153 091 036) 

(12 570 036) 

8% 

Total Expenditure 

(433 787 168) 

433 787 168 

- 

(612 101 135) 

(612 101 135) 


Surplus for the year 

268 518 455 

442 378 540 

710 896 995 

115 197 903 

(595 699 091) 


Net Surplus for the Year 

268 518 455 

442 378 540 

710 896 995 

115 197 903 

(595 699 092) 



11 





Umzinyathi District 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 


The budget variances are as a result of the following: 

(a) Rental of Facilities is less than the budget due to one facility being left vacant. When the budget was done, the municipality 
anticipated on obtaining a tenant for the facility. 

(b) Interest on Debtors is more than the budget due the debtors not paying in time. The price increases more than as 
anticipated affected the payment rate in the debtors. 

(c) Other Income is more than the budget due unanticipated insurance receipts. 

(d) Interest on Investments is less than the budget due to lower interest rates as there was no recent interest rate increase. 

(e) Actuarial Gain is a valuation exercise that is subjective based on the valuation techniques applied by the valuer. This item 
was not budgeted for due to the lack of skill to properly estimate at the municipality. 

(f) Depreciation and Amortisation is more than the budget due to the new asset register that was populated into the financial 
statements. In budget stage it was impractical to reasonably estimate these figures because the municipality did not have a 
reliable asset register. 

(g) The municipality did not have a facility forfinancing where interest is incurred, therefore this item was not budgeted for. The 
finance cost incurred were purely due to late payment of creditors due to cashflow problems. 

(h) Provision for bad debts is less than budget due to the increase in the collection rate of the municipality. 

(i) The bad debt write off was as a result of a council resolution to write off old debts as these balances were overstating the 
assets. Further based on the municipality's attempts to improve collection rates, it was imperative to write off debts to ensure 
that the repayment of current debt by consumers is Imanageable. 

(i) Post Retirement Benefits are less than budget due to the budget taking into account the actual payments based on past 
experiences whereas this figure is based on a valuation estimate by the valuer. 

(j) Share in profit of joint venture was not budgeted for due to the fact that this figure is based on the entity's profit for the year. 
It is rather impractical for the municipality to reasonable estimate the financial performance of the joint venture. 

(k) Loss on disposal of assets is less than budget because the asset disposal was not performed as per anticipated. 


12 





Umzinyathi District 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. 

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

These accounting policies are consistent with the previous period, except for the changes set out in Note 1.7 Changes in 
accounting policy. 

1.1 Going Concern Assumption 

These annual financial statements have been prepared based on the expectation that the municipality will continue to 
operate as a going concern for at least the next 12 months. 


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 judgements include: 

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. It is reasonably possible that the [name a key assumptionj assumption may change which may then impact 
our estimations and may then require a material adjustment to the carrying value of goodwill and tangible assets. 

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 used to determine the value in use of goodwill and tangible assets are 
inherently uncertain and could materially change over time. They are significantly affected by a number of factors including 
[list entity specific variables, i.e. production estimates, supply demandj, together with economic factors such as [list 
economic factors such as exchange rates inflation interestj. 

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 16 - Provisions. 

Useful lives of waste and water network and other assets 

The municipality's management determines the estimated useful lives and related depreciation charges for the waste water 
and water networks. This estimate is based on industry norm. Management will increase the depreciation charge where 
useful lives are less than previously estimated useful lives. 

Allowance for Doubtful Debts 

On debtors 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. 


13 





Umzinyathi District Municipality 

Annual Financial Statements for the year ended 30 June 2019 

Accounting Policies 


1.3 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 orservices produced and segregated for 
specific projects is assigned using specific identification of the individual costs. 

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. 

1.4 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. 

Operating Leases - Lessor 

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

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

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

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

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

Operating Leases - Lessee 

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


14 





Umzinyathi District Municipality 

Annual Financial Statements for the year ended 30 June 2019 

Accounting Policies 


1.5 Financial Instruments 

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

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. 

A concessionary loan is a loan granted to or received by an entity on terms that are not market related. 

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 an entity’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. 

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

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

Afinancial asset is: 

• cash; 

• a residual interest of another entity; or 

• a contractual right to: 

receive cash or another financial asset from another entity; or 

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

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. 

Afinancial liability is any liability that is a contractual obligation to: 

• deliver cash or another financial asset to another entity; or 

• exchange financial assets or financial liabilities under conditions that are potentially unfavourable to the entity. 


15 





Umzinyathi District Municipality 

Annual Financial Statements for the year ended 30 June 2019 

Accounting Policies 


1.5 Financial Instruments (continued) 

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 entity in the event of difficulty in meeting obligations associated with financial 
liabilities that are settled by delivering cash or another financial asset. 

Loan commitment is a firm commitment to provide credit under pre-specified terms and conditions. 

Loans payable are financial liabilities, other than short-term payables on normal credit terms. 

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

Other price risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes 
in market prices (other than those arising from interest rate risk or currency risk), whether those changes are caused by 
factors specific to the individual financial instrument or its issuer, or factors affecting all similar financial instruments traded 
in the market. 

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

A residual interest is any contract that manifests an interest in the assets of an entity after deducting all of its liabilities. A 
residual interest includes contributions from owners, which may be shown as: 

• equity instruments or similar forms of unitised capital; 

• a formal designation of a transfer of resources (or a class of such transfers) by the parties to the transaction as 
forming part of an entity’s net assets, either before the contribution occurs or at the time of the contribution; or 

• a formal agreement, in relation to the contribution, establishing or increasing an existing financial interest in the 
net assets of an entity. 

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

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

• the entity designates at fair value at initial recognition; or 

• are held for trading. 

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

Financial instruments at fair value comprise financial assets or financial liabilities that are: 

• derivatives; 

• combined instruments that are designated at fair value; 

• instruments held for trading. A financial instrument is held for trading if: 

it is acquired or incurred principally for the purpose of selling or repurchasing it in the near-term; or 
on initial recognition it is part of a portfolio of identified financial instruments that are managed together and 
for which there is evidence of a recent actual pattern of short term profit-taking; 

non-derivative financial assets or financial liabilities with fixed or determinable payments that are 
designated atfair value at initial recognition; and 

financial instruments that do not meet the definition of financial instruments at amortised cost or financial 
instruments at 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. 


16 





Umzinyathi District Municipality 

Annual Financial Statements for the year ended 30 June 2019 

Accounting Policies 


1.5 Financial Instruments (continued) 

Initial measurement of financial assets and financial liabilities 

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

The municipality measures a financial asset and financial liability initially at its fair value [if subsequently measured at fair 
value]. 

The municipality first assesses whether the substance of a concessionary loan is in fact a loan. On initial recognition, the 
municipality analyses a concessionary loan into its component parts and accounts for each component separately. The 
municipality accounts for that part of a concessionary loan that is: 

• a social benefit in accordance with the Framework for the Preparation and Presentation of Financial Statements, 
where it is the issuer of the loan; or 

• non-exchange revenue, in accordance with the Standard of GRAP on Revenue from Non-exchange Transactions 
(Taxes and Transfers), where it is the recipient of the loan. 

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. 

Reclassification 

The municipality does not reclassify a financial instrument while it is issued or held unless it is: 

• combined instrument that is required to be measured at fair value; or 

• an investment in a residual interest that meets the requirements for reclassification. 

Where the municipality cannot reliably measure the fair value of an embedded derivative that has been separated from a 
host contract that is a financial instrument at a subsequent reporting date, it measures the combined instrument at fair 
value. This requires a reclassification of the instrument from amortised cost or cost to fair value. 

If fair value can no longer be measured reliably for an investment in a residual interest measured at fair value, the 
municipality reclassifies the investment from fair value to cost. The carrying amount at the date that fair value is no longer 
available becomes the cost. 

If a reliable measure becomes available for an investment in a residual interest for which a measure was previously not 
available, and the instrument would have been required to be measured at fair value, the entity reclassifies the instrument 
from cost to fair value. 


17 





Umzinyathi District Municipality 

Annual Financial Statements for the year ended 30 June 2019 

Accounting Policies 


1.5 Financial Instruments (continued) 

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 assess 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. 

Derecognition 

Financial Assets 

The entity derecognises financial assets using trade date accounting. 

The entity derecognises a financial asset only when: 

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

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

• the entity, despite having retained some significant risks and rewards of ownership of the financial asset, has 
transferred control of the asset to another party and the other party has the practical ability to sell the asset in 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 entity : 

derecognise the asset; and 

recognise separately any rights and obligations created or retained in the transfer. 

The carrying amounts of the transferred asset are allocated between the rights or obligations retained and those transferred 
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. 


18 





Umzinyathi District Municipality 

Annual Financial Statements for the year ended 30 June 2019 

Accounting Policies 


1.5 Financial Instruments (continued) 

If the entity 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. 

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

If a transfer does not result in derecognition because the entity has retained substantially all the risks and rewards of 
ownership of the transferred asset, the entity continue to recognise the transferred asset in its entirety and recognise a 
financial iiability for the consideration received. In subsequent periods, the entity recognises any revenue on the transferred 
asset and any expense incurred on the financial liability. Neither the asset, and the associated liability nor the revenue, and 
the associated expenses are offset. 

Financial Liabilities 

The entity 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 entity 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). 

Trade and Other Receivables 

Trade and other receivables are categorized as financial assets: loans and receivables and recognised at fair value and 
subsequently carried at amortised cost. Amortised cost refers to the initial carrying amount, plus interest, less repayments and 
impairments. An estimate is made for doubtful receivables based on a review of all outstanding amounts at year-end. 

Significant financial difficulties of the debtor, probabilities that the debtor will enter bankruptcy or financial reorganization, and 
default or delinquency in payments (more than 150 days overdue) are considered indicators that the trade receivable is 
impaired. Impairments are determined by discounting expected future cash flows to their present value. Amounts that are 
receivable within 12 months from the reporting date are classified as current. An impairment of trade receivables is accounted 
for by reducing the carrying amount of trade receivables and the amount of the loss is recognised in the Statement of Financial 
Performance within operating expenses. When a trade receivable is uncollectible, it is written off. 


19 





Umzinyathi District Municipality 

Annual Financial Statements for the year ended 30 June 2019 

Accounting Policies 


1.6 Infrastructure 

The entity recognises a infrastructure or agricultural produce when, and only when: 

• the entity controls the asset as a result of past events; 

• it is probable that future economic benefits or service potential associated with the asset will flow to the 
municipality; and 

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

Infrastructure are measured at their fair value less costs to sell. 

The fair value of livestock is determined based on market prices of livestock of similar age, breed, and genetic merit. 

The fair value of milk is determined based on market prices in the local area. 

The fair value of the vine / pine plantations is based on the combined fair value of the land and the vines / pine trees. The 
fair value of the raw land and land improvements is then deducted from the combined fair value to determine the fair value 
of the vines / pine trees. 

A gain or loss arising on initial recognition of infrastructure or agricultural produce at fair value less costs to sell and from a 
change in fair value less costs to sell of a infrastructure is included in surplus or deficit for the period in which it arises. 

Where market determined prices or values are not available, the present value of the expected net cash inflows from the 
asset, discounted at a current market-determined pre-tax rate where applicable is used to determine fair value. 

An unconditional government grant related to a infrastructure measured at its fair value less costs to sell is recognised as 
income when the government grant becomes receivable. 

Where fair value cannot be measured reliably, biological assets are measured at cost less any accumulated depreciation 
and any accumulated impairment losses. 

Depreciation is provided on infrastructure where fair value cannot be determined, to write down the cost, less residual 
value, by equal installments over their useful lives as follows: 

Item Useful life 

Other Infrastructure 20 - 40 years 

1.7 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. 

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 value of the investment property 
can be measured reliably. 

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

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

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


20 





Umzinyathi District Municipality 

Annual Financial Statements for the year ended 30 June 2019 

Accounting Policies 


1.7 Investment Property (continued) 

Cost model 

Investment Property is carried at cost less accumulated depreciation and any accumulated impairment losses. 

Depreciation is provided to write down the cost, less estimated residual value over the useful life of the property, which is 
as follows: 

Item Useful life 

Property - buildings 40 years 

Investment Property is derecognised 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 the 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 from third parties for investment property that was impaired, lost or given up is recognised in surplus or 
deficitwhen the compensation becomes receivable. 


1.8 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. 

Items such as spare parts, standby equipment and servicing equipment are recognised when they meet the definition of 
property, plantand equipment. 


21 





Umzinyathi District Municipality 

Annual Financial Statements for the year ended 30 June 2019 

Accounting Policies 


1.8 Property, Plant and Equipment (continued) 

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. 

Property, Plant and Equipment is carried at revalued amount, being the fair value at the date of revaluation less any 
subsequent accumulated depreciation and subsequent accumulated impairment losses. 

When an item of property, plant and equipment is revalued, any accumulated depreciation at the date of the revaluation is 
restated proportionately with the change in the gross carrying amount of the asset so that the carrying amount of the asset after 
revaluation equals its revalued amount. 

When an item of property, plant and equipment is revalued, any accumulated depreciation at the date of the revaluation is 
eliminated against the gross carrying amount of the asset and the net amount restated to the revalued amount of the asset. 

The revaluation surplus in equity related to a specific item of property, plant and equipment is transferred directly to retained 
earnings when the asset is derecognised. 

The revaluation surplus in equity related to a specific item of property, plant and equipment is transferred directly to retained 
earnings as the asset is used. The amount transferred is equal to the difference between depreciation based on the revalued 
carrying amount and depreciation based on the original cost of the asset. 

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

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 Depreciation method Average useful life 

Infrastructure Straight line 10-100 years 

Other property, plant and equipment Straight line 4-15 years 

The depreciable amount of an asset is allocated on a systematic basis over its useful life. 

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

The depreciation method used reflects the pattern in which the asset’s future economic benefits or service potential are 
expected to be consumed by the municipality. The depreciation method applied to an asset is reviewed at least at each 
reporting date and, if there has been a significant change in the expected pattern of consumption of the future economic 
benefits or service potential embodied in the asset, the method is changed to reflect the changed pattern. Such a change is 
accounted for as a change in an accounting estimate. 

The municipality assesses at each reporting date whether there is any indication that the municipality expectations about the 
residual value and the useful life of an asset have changed since the preceding reporting date. If any such indication exists, the 
municipality revises the expected useful life and/or residual value accordingly. The change is accounted for as a change in an 
accounting estimate. 

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

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

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


22 







Umzinyathi District Municipality 

Annual Financial Statements for the year ended 30 June 2019 

Accounting Policies 


1.8 Property, Plant and Equipment (continued) 

Assets which the municipality holds for rentals to others and subsequently routinely sell as part of the ordinary course of 
activities, are transferred to inventories when the rentals end and the assets are available-for-sale. Proceeds from sales of 
these assets are recognised as revenue. All cash flows on these assets are included in cash flows from operating activities in 
the cash flow statement. 

1.9 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 obligations. 

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

An intangible asset is recognised when: 

• it is probable that the expected future economic benefits or service potential that are attributable to the asset will 
flow to the municipality; and 

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

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

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

Expenditure on research (oron 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 carried at cost less any accumulated amortisation and any impairment losses. 

An intangible asset is regarded as having an indefinite useful life when, based on all relevant factors, there is no 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. 

Internally generated goodwill is not recognised as an intangible asset. 

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


23 






Umzinyathi District Municipality 

Annual Financial Statements for the year ended 30 June 2019 

Accounting Policies 


1.9 Intangible Assets (continued) 


Item Depreciation method Average useful life 

Computer Software Straight line 5 years 


1.10 Interest in JointVenture 

Interest in joint ventures are accounted for using the equity method. The carrying amount of the interest in joint venture is 
calculated at cost plus the entity’s subsequent share of the joint ventures comprehensive income. If at the end of a reporting 
period there is an indication that an interest in a joint venture may be impaired, the entire carrying amount of the joint venture is 
tested for impairment. If the carrying amount of the joint venture is found to be less than its recoverable amount, the carrying 
amount is reduced to its recoverable amount and an impairment loss is immediately recognised in profit or loss. 

1.11 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 orservice 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. 

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. 

Judgements 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 test 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. 


24 







Umzinyathi District Municipality 

Annual Financial Statements for the year ended 30 June 2019 

Accounting Policies 


1.11 Impairment of cash-generating assets (continued) 

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. 

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 deficit. 

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

When the amount estimated for an impairment loss is greater than the carrying amount of the 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. 


25 





Umzinyathi District Municipality 

Annual Financial Statements for the year ended 30 June 2019 

Accounting Policies 


1.11 Impairment of cash-generating assets (continued) 

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 ofthe cash-generating unit. 


26 





Umzinyathi District Municipality 

Annual Financial Statements for the year ended 30 June 2019 

Accounting Policies 


1.11 Impairment of cash-generating assets (continued) 

Reversal of impairment loss 

The municipality assess 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 deficit. 

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

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. 

1.12 Impairment of non-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. 

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

Impairment is a loss in the future economic benefits or service potential of an asset, over and above the systematic 
recognition of the loss of the asset’s future economic benefits orservice 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 managed 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. 

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


27 





Umzinyathi District Municipality 

Annual Financial Statements for the year ended 30 June 2019 

Accounting Policies 


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

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. 

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

Identification 

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

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

Irrespective of whether there is any indication of impairment, the entity also test a non-cash-generating intangible asset with 
an indefinite useful life or a non-cash-generating intangible asset not yet available for use for impairment annually by 
comparing its carrying amount with its recoverable service 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 non-cash-generating assets is the present value of the non-cash-generating assets remaining service 
potential. 

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

Depreciated replacement cost approach 

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

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

Recognition and measurement 

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

An impairment loss is recognised immediately in surplus or deficit. 

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

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

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


28 





Umzinyathi District Municipality 

Annual Financial Statements for the year ended 30 June 2019 

Accounting Policies 


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

Reversal of an impairment loss 

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

An impairment loss recognised in prior periods for a non-cash-generating asset is reversed if there has been a change in 
the estimates used to determine the asset’s recoverable service amount since the last impairment loss was recognised. 
The carrying amount of the asset is increased to its recoverable service amount. The increase is a reversal of an 
impairment loss. The increased carrying amount of an asset attributable to a reversal of an impairment loss does not 
exceed the 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 non-cash-generating asset is recognised immediately in surplus or deficit. 

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

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

1.13 Employee Benefits 
Short-Term Employee Benefits 

The cost of short-term employee benefits, (those payable within 12 months after the service is rendered, such as paid 
vacation leave and sick leave, bonuses, and non-monetary benefits such as medical care), are recognised in the period in 
which the service is rendered and are not discounted. 

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

Defined Contribution Plans 

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

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


29 





Umzinyathi District Municipality 

Annual Financial Statements for the year ended 30 June 2019 

Accounting Policies 


1.13 Employee Benefits (continued) 

Defined Benefit Plans 

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

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

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

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

To the extent that, at the beginning of the financial period, any cumulative unrecognised actuarial gain or loss exceeds ten 
percent of the greater of the present value of the projected benefit obligation and the fair value of the plan assets (the 
corridor), that portion is recognised in surplus or deficit over the expected average remaining service lives of participating 
employees. Actuarial gains or losses within the corridor are not recognised. 

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

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

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

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

Other Post Retirement Obligations 

The municipality provides post-retirement health care benefits, housing subsidies and gratuities upon retirement to some 
retirees. 

The entitlement to post-retirement health care benefits is based on the employee remaining in service up to retirement age 
and the completion of a minimum service period. The expected costs of these benefits are accrued over the period of 
employment. Independent qualified actuaries carry out valuations of these obligations. The municipality also provides a 
gratuity and housing subsidy on retirement to certain employees. An annual charge to income is made to cover both these 
liabi lities. 

1.14 Revenue from Exchange Transactions 

Revenue is the gross inflow of economic benefits or service potential during the reporting period when those inflows result 
in an increase in net assets, otherthan 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. 

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

Measurement 

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


30 





Umzinyathi District Municipality 

Annual Financial Statements for the year ended 30 June 2019 

Accounting Policies 


1.14 Revenue from Exchange Transactions (continued) 

Sale of Goods 

Revenue from the sale of goods is recognised when all the following conditions have been satisfied: 

• the municipality has transferred to the purchaser the significant risks and rewards of ownership of the goods; 

• the municipality retains neither continuing managerial involvement to the degree usually associated with 
ownership nor effective control over the goods sold; 

• the amount of revenue can be measured reliably; 

• it is probable that the economic benefits or service potential associated with the transaction will flow to the 
municipality; and 

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

Rendering of Services 

When the outcome of a transaction involving the rendering of services can be estimated reliably, revenue associated with 
the 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 the proportion that costs incurred to date bear to the total estimated costs of the transaction. 

1.15 Revenue from Non-Exchange Transactions 

Non-exchange transactions are defined as transactions where the entity receives value from another entity without directly 
giving approximately equal value in exchange. 

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, otherthan increases relating to contributions from owners. 

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

Measurement 

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


31 





Umzinyathi District Municipality 

Annual Financial Statements for the year ended 30 June 2019 

Accounting Policies 


1.15 Revenue from Non-Exchange Transactions (continued) 

Government Grants 

Government grants are recognised as revenue when: 

• it is probable that the economic benefits or service potential associated with the transaction will flow to the 
municipality, 

• the amount of the revenue can be measured reliably, and 

• to the extent that there has been compliance with any restrictions associated with the grant. 

The municipality assesses the degree of certainty attached to the flow of future economic benefits or service potential on 
the basis of the available evidence. Certain grants payable by one level of government to another are subject to the 
availability of funds. Revenue from these grants is only recognised when it is probable that the economic benefits or service 
potential associated with the transaction will flow to the entity. An announcement at the beginning of a financial year that 
grants may be available for qualifying entities in accordance with an agreed programme may not be sufficient evidence of 
the probability of the flow. Revenue is then only recognised once evidence of the probability of the flow becomes available. 

Restrictions on government grants may result in such revenue being recognised on a time proportion basis. Where there is 
no restriction on the period, such revenue is recognised on receipt or when the Act becomes effective, which-ever is earlier. 

When government remit grants on a re-imbursement basis, revenue is recognised when the qualifying expense has been 
incurred and to the extent that any other restrictions have been complied with. 

1.16 Investment Income 

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

1.17 Borrowing Costs 

Borrowing costs are interest and other expenses incurred by an entity in connection with the borrowing of funds. 

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

1.18 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 amountof a provision increases in each period to reflectthe passage oftime. This 
increase is recognised as an interest expense. 

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


32 





Umzinyathi District Municipality 

Annual Financial Statements for the year ended 30 June 2019 

Accounting Policies 


1.18 Provisions and Contingencies (continued) 

Provisions are not recognised for future operating surplus (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. 

A constructive obligation to restructure arises only when an entity: 

• has a detailed formal plan for the restructuring, identifying at least: 

the activity/operating unit or part of a activity/operating unit concerned; 
the principal locations affected; 

the location, function, and approximate number of employees who will be compensated for services 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 42. 

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. 

Loan commitment is a firm commitment to provide credit under pre-specified terms and conditions. 

The municipality recognises a provision for financial guarantees and loan commitments when it is probable that an outflow 
of resources embodying economic benefits and service potential will be required to settle the obligation and a reliable 
estimate of the obligation can be made. 

Determining whether an outflow of resources is probable in relation to financial guarantees requires judgement. Indications 
that an outflow of resources may be probable are: 

• financial difficulty of the debtor; 

• defaults or delinquencies in interest and capital repayments by the debtor; 

• breaches of the terms of the debt instrument that result in it being payable earlier than the agreed term and the 
ability of the debtorto settle its obligation on the amended terms; and 

• a decline in prevailing economic circumstances (e.g. high interest rates, inflation and unemployment) that impact 
on the ability of entities to repay their obligations. 

Where a fee is received by the municipality for issuing a financial guarantee and/or where a fee is charged on loan 
commitments, it is considered in determining the best estimate of the amount required to settle the obligation at reporting 
date. Where a fee is charged and the municipality considers that an outflow of economic resources is probable, an 
municipality recognises the obligation at the higher of: 

• the amount determined using in the Standard of GRAP on Provisions, Contingent Liabilities and Contingent 
Assets; and 

• the amount of the fee initially recognised less, where appropriate, cumulative amortisation recognised in 
accordance with the Standard of GRAP on Revenue from Exchange Transactions. 


33 





Umzinyathi District Municipality 

Annual Financial Statements for the year ended 30 June 2019 

Accounting Policies 


1.19 Comparative Figures 

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

1.20 Commitments 

Items are classified as commitments when an entity has committed itself to future transactions that will normally result in the 
outflow of cash. 

Disclosures are required in respect of unrecognised contractual commitments. 

Commitments for which disclosure is necessary to achieve a fair presentation should be disclosed in a note to the financial 
statements, if both the following criteria are met: 

• Contracts should be non-cancellable or only cancellable at significant cost (for example, contracts for computer 
or building maintenance services); and 

• Contracts should relate to something other than the routine, steady, state business of the entity - therefore 
salary commitments relating to employment contracts or social security benefit commitments are excluded. 

• Commitments disclosed are inclusive of VAT where suppliers are VAT vendors. 

1.21 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. 

1.22 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. 

1.23 Irregular Expenditure 

Irregular expenditure as defined in section 1 of the PFMA is expenditure other than unauthorised expenditure, incurred in 
contravention of or that is not in accordance with a requirement of any applicable legislation, including - 

(a) this Act; or 

(b) the State Tender Board Act, 1968 (Act No. 86 of 1968), or any regulations made in terms of the Act; or 

(c) any provincial legislation providing for procurement procedures in that provincial government. 

National Treasury practice note no. 4 of 2008/2009 which was issued in terms of sections 76(1) to 76(4) of the PFMA 
requires the following (effective from 1 April 2008): 

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. 

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


34 





Umzinyathi District Municipality 

Annual Financial Statements for the year ended 30 June 2019 

Accounting Policies 


1.23 Irregular Expenditure (continued) 

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

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. 

1.24 Budget Information 

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

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

1.25 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. 


35 





Umzinyathi District Municipality 

Annual Financial Statements for the year ended 30 June 2019 

Accounting Policies 


1.25 Related Parties (continued) 

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. 

1.26 Events after Reporting Date 

Events after reporting date are those events, both favourable and unfavourable, that occur between the reporting 
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 
date); and 

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


date and 
reporting 
reporting 


36 





Umzinyathi District Municipality 

Annual Financial Statements for the year ended 30 June 2019 

Notes to the Annual Financial Statements 

Figures in Rand 2019 2018 


2. New standards and interpretations 

2.1 Standards and interpretations issued, but not yet effective 

The municipality has not applied the following standards and interpretations, which have been published and are mandatory 
for the municipality’s accounting periods beginning on or after 01 July 2019 or later periods: 


Standard/ Interpretation: 

Effective date: 

Years beginning on or 
after 

Expected impact: 

• 

GRAP 34: Separate Financial Statements 

01 April 2019 

Unlikely there will be a 
material impact 

• 

GRAP 35: Consolidated Financial Statements 

01 April 2019 

Unlikely there will be a 
material impact 

• 

GRAP 36: Investments in Associates and Joint Ventures 

01 April 2019 

Impact is currently being 
assessed 

• 

GRAP 37: Joint Arrangements 

01 April 2019 

Unlikely there will be a 
material impact 

• 

GRAP 38: Disclosure of Interests in Other Entities 

01 April 2019 

Unlikely there will be a 
material impact 

• 

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

01 April 2019 

Unlikely there will be a 
material impact 

• 

GRAP 7 (as revised 2010): Investments in Associates 

01 April 2019 

Impact is currently being 
assessed 

• 

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

01 April 2019 

Not expected to impact 
results but may result in 
additional disclosure 

• 

GRAP 20: Related parties 

01 April 2019 

Not expected to impact 
results but may result in 
additional disclosure 

• 

IGRAP 18: Interpretation of the Standard of GRAP on 
Recognition and Derecognition of Land 

01 April 2019 

Unlikely there will be a 
material impact 


3. Inventories 


Water Inventory 
Chemicals 


120 734 107 447 

11 398 444 1 120 058 



11 519 178 

1 227 505 

Inventory is valued at lower of cost or net realisable value. 

There is no inventory that was pledged as security. 


4. Receivables from Non-Exchange Transactions 



Supplier Over Payment 

Sundry Debtors 

Uthukela Receipting Debtor 

3 364 143 

4 267 946 

4 384 502 

3 107 250 

4 267 946 

4 384 502 


12 016 591 

11 759 698 

Uthukela Water (Pty) Ltd received consumer payments on the behalf of the municipality, after the municipality had taken over 
the function of the WSP agreement. Uthukela Water (Pty) Ltd then did not transfer the money received as Uthukela Water (Pty) 
Ltd claims to have deducted these receipts from invoices of bulk purchases. There is no substantiating evidence provided by 
Uthukela Water (Pty) Ltd to prove the deduction from the bulk purchases invoices. 

5. VAT Receivable 



VAT 

16 159 143 

15 194 852 


VAT is prepared on a cash basis. This receivable is as a result of expenditure incurred. 


37 







Umzinyathi District Municipality 

Annual Financial Statements for the year ended 30 June 2019 


Notes to the Annual Financial Statements 


Figures in Rand 

2019 

2018 

6. Receivables from Exchange Transactions 



Gross Balances 

Water 

112 613207 

120 374 655 

Sewerage 

31 097 722 

36 265 069 

Consumer Debtor - VAT Payable 

30 621 415 

34 058 583 

Consumer Debtor - Interest 

53 713 615 

63 194 253 

Housing Rental 

196 474 

196 474 


228 242 433 

254 089 034 

Less: Allowance for Impairment 

Water 

(84 481 100) 

(86 448 996) 

Sewerage 

(23 329 144) 

(26 044 343) 

Consumer Debtor - VAT Payable 

(22 971 826) 

(24 459 720) 

Consumer Debtor - Interest 

(40 295 275) 

(45 383 970) 


(171 077 345) 

(182 337 029) 

Net Balance 

Water 

28 132 107 

33 925 659 

Sewerage 

7 768 578 

10 220 726 

Consumer Debtor - VAT Payable 

7 649 589 

9 598 863 

Consumer Debtor - Interest 

13 418 341 

17 810 283 

Housing Rental 

196 474 

196 474 


57 165 089 

71 752 005 

Water 

Current (0 -30 days) 

6 811 029 

13 820 457 

31 - 60 days 

5 128 470 

4 469 792 

61 - 90 days 

3 740 267 

4 072 691 

91 - 120 days 

2 974 522 

4 100 236 

121 - 365 days 

93 958 919 

93 911 480 

Less Allowance for Impairment 

(84 481 100) 

(86 448 997) 


28 132 107 

33 925 659 

Sewerage 

Current (0 -30 days) 

1 505 954 

3 184 206 

31 - 60 days 

1 080 040 

1 165 173 

61 - 90 days 

962 811 

1 032 277 

91 - 120 days 

745 114 

1 135 695 

121 - 365 days 

26 803 803 

29 747 718 

Less: Allowance for Impairment 

(23 329 144) 

(26 044 343) 


7 768 578 

10 220 726 

VAT - Payable 

Current (0 -30 days) 

1 252 236 

2 539 929 

31 - 60 days 

1 072 209 

825 418 

61 - 90 days 

885 017 

758 142 

91 - 120 days 

742 151 

716 729 

121 - 365 days 

26 669 801 

29 218 365 

Less: Allowance for Impairment 

(22 971 825) 

(24 459 720) 


7 649 589 

9 598 863 


38 






Umzinyathi District Municipality 

Annual Financial Statements for the year ended 30 June 2019 

Notes to the Annual Financial Statements 

Figures in Rand 2019 2018 


6. Receivables from Exchange Transactions (continued) 


Interest 


Current (0 -30 days) 

1 337 709 

1 429 101 

31 - 60 days 

1 260 222 

1 387 441 

61 - 90 days 

1 223 013 

1 339 246 

91 - 120 days 

1 192 131 

1 286 229 

121 - 365 days 

48 700 540 

57 752 237 

Less: Allowance for Impairment 

(40 295 275) 

(45 383 971) 


13 418 340 

17 810 283 

Housing Rental 

Current (0 -30 days) 

- 

9 246 

31 - 60 days 

- 

9 070 

61 - 90 days 

- 

9 070 

91 - 120 days 

- 

8 991 

121 - 365 days 

- 

8 991 

> 365 days 

196 474 

151 106 


196 474 

196 474 


39 






Umzinyathi District Municipality 

Annual Financial Statements for the year ended 30 June 2019 

Notes to the Annual Financial Statements 

Figures in Rand 2019 2018 


6. Receivables from Exchange Transactions (continued) 
Summary of receivables by customer classification 


Consumers and Indigents 


Current (0 -30 days) 

5 925 332 

11 342 004 

31 - 60 days 

4 405 249 

5 458 475 

61 - 90 days 

4 591 436 

5 245 488 

91 - 120 days 

4 120 606 

4 178 608 

121 - 365 days 

156 428 042 

184 555 843 

Payments in advance/ adjustments 

- 

(12 501) 


175 470 665 

210 767 917 

Less: Allowance for impairment 

(131 488 596) 

(188 139 380) 


43 982 069 

22 628 537 

Industrial/ Commercial 

Current (0 -30 days) 

1 956 731 

1 801 642 

31 - 60 days 

1 778 065 

933 415 

61 - 90 days 

828 016 

953 154 

91 - 120 days 

789 189 

425 859 

121 - 365 days 

19 737 176 

12 669 213 

Less: Allowance for impairment 

(18 821 600) 

(178 710) 


6 267 577 

16 604 573 

National and Provincial Government 

Current (0 -30 days) 

3 024 865 

7 830 046 

31 - 60 days 

2 357 627 

1 455 935 

61 - 90 days 

1 391 661 

1 003 715 

91 - 120 days 

744 124 

2 634 423 

121 - 365 days 

20 164 315 

13 404 743 

Less: Allowance for impairment 

(20 767 149) 

14 114 


6 915 443 

26 342 976 

Total 

Current (0 -30 days) 

10 906 928 

20 973 690 

31 - 60 days 

8 540 942 

7 847 824 

61 - 90 days 

6 811 112 

7 202 357 

91 - 120 days 

5 653 919 

7 238 890 

121 - 365 days 

196 329 533 

210 826 273 


228 242 434 

254 089 034 

Less: Allowance for impairment 

(171 077 345) 

(182 337 029) 


57 165 089 

71 752 005 

Reconciliation of allowance for impairment 

Balance at beginning of the year 

(182 337 029) 

(114 952 384) 

Contributions to allowance 

11 259 684 

(67 384 645) 


(171 077 345) 

(182 337 029) 


Credit quality of receivables 

The credit quality of receivables (consumer debtors) that are neither past nor due nor impaired can be assessed by reference 
to external credit ratings (if available) or to historical information about counterparty default rates. 


40 






Umzinyathi District Municipality 

Annual Financial Statements for the year ended 30 June 2019 

Notes to the Annual Financial Statements 

Figures in Rand 2019 2018 


6. Receivables from Exchange Transactions (continued) 
Ageing of the receivables impaired 

The ageing of these receivables impaired is as follows: 


3 to 6 months 

- 

- 

Over 6 months 

171 077 345 

182 337 029 

7. Cash and Cash Equivalents 



Cash and cash equivalents consist of: 



Cash on hand 

6 100 

6 100 

Bank balances 

14 877 780 

51 332 453 

Short-term deposits 

41 923 103 

99 502 819 


56 806 983 

150 841 372 


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 

FNB Current Cheque Account - 
(Main) 62358106279 

15 104 897 

50 135 046 

4 002 332 

14 877 780 

51 322 453 

3 996 250 

FNB Water Account - 
62358438044 


10 000 

10 000 


10 000 

10 000 

FNB 7 Days Notice Account - 
74321014438 

14 352 510 

49 861 471 

11 101 077 

14 352 510 

48 591 190 

11 101 077 

FNB Investment Account - 
6233578564 

235 537 

47 322 

4 850 807 

235 537 

47 322 

4 825 783 

RMB Call Investment Account - 
021900664 

- 

- 

9 106 

- 

- 

9 058 

Nedbank Investment Account - 
73370049 

1 841 488 

5 932 316 

20 969 

1 841 488 

5 930 506 

20 969 

Investec Bank Investment 
Account - 1100461826502 

13 180 286 

40 106 646 

44 585 972 

13 180 286 

40 106 646 

44 585 972 

Investec Bank Investment 
Account - 1100461826503 

- 

21 810 

20 431 

- 

21 808 

20 431 

Standard Bank Account - 
308632095-003 

138 821 

245 365 

4 273 479 

138 821 

249 847 

4 273 479 

Standard Bank Account - 
035517239 

40 

4 517 912 

1 218 

40 

4 517 912 

1 130 

Standard Bank Account - 
008632095-005 

- 

10 381 

- 

- 

10 381 

- 

ABSA Investment Account - 
9330621802 

120 

27 207 

- 

120 

27 207 

- 

Petty Cash Account 

- 

- 

- 

6 100 

6 100 

6 100 

Investec Bank Investment 
Account - 1100461826451 

12 174 301 

" 

- 

12 174 301 

" 

“ 

Total 

57 028 000 

150 915 476 

68 875 391 

56 806 983 

150 841 372 

68 850 249 


41 






Umzinyathi District Municipality 

Annual Financial Statements for the year ended 30 June 2019 

Notes to the Annual Financial Statements 

Figures in Rand 


8. Infrastructure 



2019 


2018 

Cost / 

Accumulated Carrying value 

Cost / 

Accumulated Carrying value 

Valuation 

depreciation 

Valuation 

depreciation 


and 


and 


accumulated 


accumulated 


impairment 


impairment 


Infrastructure Assets 

1 343 533 651 (501 517 000) 

842 016 651 

1 241 220 733 

(418 572 171) 822 648 562 

Infrastructure - Work-in-Progress 

1 202 388 702 

1 202 388 702 

1 010 879 805 

- 1 010 879 805 

Total 

2 545 922 353 (501 517 000) 2 044 405 353 

2 252 100 538 

(418 572 171)1 833 528 367 

Reconciliation of Infrastructure - 2019 


Opening 

Additions 

Transfers 

Depreciation Total 

Infrastructure Assets 

Balance 

822 648 562 


received 

102 312 918 

(82 944 829) 842 016 651 

Infrastructure - Work- In-Progress 

1 010 879 805 

293 821 815 

(102 312 918) 

- 1 202 388 702 


1 833 528 367 

293 821 815 

- 

(82 944 829) 2 044 405 353 

Reconciliation of Infrastructure - 2018 


Opening Additions Transfers 

Transfers 

Prior Year 

Depreciation Total 

Infrastructure Assets 

Balance Received 

919 020 732 - 61 610 236 


Adjustments 
(74 723 194) 

(83 259 212) 822 648 562 

Infrastructure - Work - in progress 

869 758 584 239 690 959 

(61 610 236) 

(36 959 502) 

- 1 010 879 805 


1 788 779 316 239 690 959 61 610 236 

(61 610 236) 

(111 682 696) 

(83 259 212) 1 833 528 367 


Pledged as security 

No infrastructure assets are pledged as security. 


42 






Umzinyathi District Municipality 

Annual Financial Statements for the year ended 30 June 2019 


Notes to the Annual Financial Statements 


Figures in Rand 




2019 

2018 

9. Investment Property 


2019 



2018 


Cost / 

Accumulated 

Carrying value 

Cost / 

Accumulated 

Carrying value 

Valuation 

depreciation 


Valuation 

depreciation 



and 



and 



accumulated 



accumulated 



impairment 



impairment 


Investment Property 1 160 845 

(389 120) 

771 725 

1 160 845 

(350 452) 

810 393 

Reconciliation of Investment Property - 2019 



Opening 

Balance 

Depreciation 

Total 

Investment Property 



810 393 

(38 668) 

771 725 

Reconciliation of Investment Property - 2018 


Opening 

Prior Year 

Depreciation 

Total 



Balance 

Adjustments 



Investment Property 


855 808 

(6 747) 

(38 668) 

810 393 


Rental income from Investment Property is disclosed on Note 20. 


43 






Umzinyathi District Municipality 

Annual Financial Statements for the year ended 30 June 2019 

Notes to the Annual Financial Statements 

Figures in Rand 


10. Property, Plant and Equipment 



2019 


2018 

Cost / 

Accumulated Carrying value 

Cost / 

Accumulated Carrying value 

Valuation 

depreciation 

Valuation 

depreciation 


and 


and 


accumulated 


accumulated 


impairment 


impairment 


Buildings 

28 872 532 

(9 969 106) 

18 903 426 

28 872 532 

(9 007 347) 

19 865 185 

Buildings - Work in Progress 

34 645 019 

- 

34 645 019 

34 645 019 

- 

34 645 019 

Plant and Machinery 

38 545 335 

(15 910 190) 

22 635 145 

28 887 117 

(10 726 737) 

18 160 380 

Motor Vehicles 

34 395 051 

(10 659 470) 

23 735 581 

29 226 383 

(7 068 118) 

22 158 265 

Furniture and Office Equipment 

11 597 464 

(5 548 725) 

6 048 739 

10 774 488 

(4 611 873) 

6 162 615 

Total 

148 055 401 

(42 087 491) 

105 967 910 

132 405 539 

(31 414 075) 

100 991 464 

Reconciliation of Property, Plant and Equipment - 2019 









Opening 

Additions 

Disposals 

Depreciation 

Total 



Balance 





Buildings 


19 865 185 

- 

- 

(961 759) 

18 903 426 

Buildings - Work In Progress 


34 645 019 

- 

- 

- 

34 645 019 

Plant and Machinery 


18 160 380 

9 661 018 

- 

(5 186 253) 

22 635 145 

Motor Vehicles 


22 158 265 

5 360 773 

- 

(3 783 457) 

23 735 581 

Furniture and Office Equipment 


6 162 615 

1 078 885 

(8 266) 

(1 184 495) 

6 048 739 



100 991 464 

16 100 676 

(8 266) 

(11 115 964) 

105 967 910 


44 






Umzinyathi District Municipality 

Annual Financial Statements for the year ended 30 June 2019 

Notes to the Annual Financial Statements 

Figures in Rand 


10. Property, Plant and Equipment (continued) 
Reconciliation of Property, Plant and Equipment - 2018 



Opening 

Balance 

Additions 

Disposals 

Prior Year 
Adjustments 

Depreciation 

Total 

Buildings 

20 516 548 

- 

- 

310 396 

(961 759) 

19 865 185 

Buildings - Work In Progress 

34 645 019 

- 

- 

- 

- 

34 645 019 

Plant and Machinery 

10 388 639 

5 654 300 

- 

4 725 239 

(2 607 798) 

18 160 380 

Motor Vehicles 

13 467 501 

4 194 735 

(271 841) 

7 593 716 

(2 825 846) 

22 158 265 

Furniture and Office Equipment 

2 227 866 

983 427 

- 

3 922 012 

(970 690) 

6 162 615 


81 245 573 

10 832 462 

(271 841) 

16 551 363 

(7 366 093) 

100 991 464 


Pledged as security 

No items of property, plant and equipment are pledged as security. 


45 






Umzinyathi District Municipality 

Annual Financial Statements for the year ended 30 June 2019 


Notes to the Annual Financial Statements 


Figures in Rand 




2019 

2018 

11. Intangible Assets 


2019 



2018 


Cost / 
Valuation 

Accumulated 

amortisation 

and 

accumulated 

impairment 

Carrying Value 

Cost / 
Valuation 

Accumulated 

amortisation 

and 

accumulated 

impairment 

Carrying Value 

Computer Software 6 060 015 

(1 935 050) 

4 124 965 

4 172 428 

(1 707 057) 

2 465 371 

Reconciliation of Intangible Assets - 2019 


Opening 

Balance 

Additions 

Disposals 

Amortisation 

Total 

Computer Software 

2 465 371 

1 893 456 

(1 899) 

(231 963) 

4 124 965 

Reconciliation of Intangible Assets - 2018 


Opening 

Balance 

Additions 

Prior Year 
Adjustments 

Amortisation 

Total 

Computer Software 

356 332 

374 626 

1 835 327 

(100 914) 

2 465 371 


12. Interest in Joint Venture 



Name of Company 

Carrying 

Carrying 


Amount 

Amount 


2019 

2018 

uThukela Water (Pty) Ltd 

254 522 745 

264 572 884 

Reconciliation of Interest in Joint Venture 

Opening Balance 

264 572 884 

295 228 554 

Share in Deficit of Joint Venture 

(10 050 139) 

(30 655 670) 

Closing Balance 

254 522 745 

264 572 884 

13. Payables From Exchange Transactions 



Trade Payables 

37 835 746 

66 223 793 

Payments Received In Advance 

14 539 286 

2 202 959 

Accrued Expense 

59 370 005 

24 211 357 

Retentions 

48 925 145 

38 071 989 

Bonus Accrual 

4 278 825 

4 046 901 


164 949 007 

134 756 999 

The fair value of trade and other payables approximates their carrying amounts. 



14. Consumer Deposits 



Water 

451 514 

459 131 


The Consumer deposits relates to monies paid for connections before any services could be rendered. 
These amounts relates to prior period deposits. 


46 






Umzinyathi District Municipality 

Annual Financial Statements for the year ended 30 June 2019 


Notes to the Annual Financial Statements 


Figures in Rand 


2019 

2018 

15. Unspent Conditional Grants and Receipts 




Unspent Conditional Grants and Receipts comprises of: 




Rural Transportation Infrastructure Grant 


- 

749 954 

Water Services Infrastructure Grant 


- 

36 548 450 

Development Planning Shared Services Grant 


- 

126 884 

District Growth and Development Summit Grant 


- 

300 000 



- 

37 725 288 

16. Provisions 




Reconciliation of Provisions - 2019 





Opening 

Movement for 

Total 


Balance 

the Year 


Leave Provision 

11 992 076 

2 115 446 

14 107 522 

Reconciliation of Provisions - 2018 





Opening 

Movement for 

Total 


Balance 

the Year 


Leave Provision 

10 792 492 

1 199 584 

11 992 076 

17. Employee Benefit Obligations 




The amounts recognised in the statement of financial position are as follows: 




Carrying Value 




Post Employment Medical Benefit 


16 555 663 

17 172 000 

Long Service Award 


7 608 656 

6 449 000 



24 164 319 

23 621 000 

Non-Current Liabilities 


24 164 319 

23 621 000 

Current Liabilities 


- 

- 



24 164 319 

23 621 000 

Changes in the present value of the defined post-employment medical aid benefit liability are as follows: 


Opening Balance 


17 172 000 

18 661 000 

Current Service Costs 


972 000 

1 409 000 

Current Interest Costs 


1 732 000 

1 952 000 

Benefit Paid 


(446 000) 

(325 000) 

Actuarial Gain 


(2 874 337) 

(4 525 000) 



16 555 663 

17 172 000 

Changes in the present value of long service awards liability are as follows: 




Opening balance 


6 449 000 

5 561 000 

Current Service Costs 


776 000 

706 000 

Interest Costs 


669 000 

569 000 

Benefit Paid 


(332 000) 

(194 000) 

Actuarial Gain/Loss 


46 656 

(193 000) 


- 

7 608 656 

6 449 000 


47 






Umzinyathi District Municipality 

Annual Financial Statements for the year ended 30 June 2019 


Notes to the Annual Financial Statements 


Figures in Rand 

2019 

2018 

17. Employee Benefit Obligations (continued) 



Net expense recognised in the statement of financial performance 



Medical Aid Post Retirement Benefit 

972 000 

1 409 000 

-Current Service Costs 
-Interest Costs 

1 732 000 

1 952 000 

- Benefit Paid 

(446 000) 

(325 000) 

Total of Post Retirement Benefit 

2 258 000 

3 036 000 

Long Service Award 

- 

- 

Current Service Costs 

776 000 

706 000 

Interest Cost 

669 000 

569 000 

Benefit Cost 

(332 000) 

194 000 

Total Long Service Award 

1 113 000 

1 081 000 


3 371 000 

4 117 000 

Calculation of actuarial gains and losses 



Post Employment Benefit 

(2 874 337) 

(4 525 000) 

Long Service Award 

46 656 

(193 000) 


(2 827 681) 

(4 718 000) 

Key assumptions used 



Valuation assumptions used at the reporting date: 



Financial Variable 

Assumed 

Assumed 


Value 30-06- 

Value at 30-06- 


2019 (Current 

2018 


Valuation) 

(Preceding 

Valuation) 

Discount Rate 

Yield Curve 

Yield Curve 

CPI (Consumer Price Inflation) 

Difference 

Difference 


between 

between 


nominal and 

nominal and 


real yield curve 

real yield curve 

Medical Aid Contribution Inflation 

CPI+1% 

CPI+1% 

Net Effective Discount Rate 

Yield Curve 

Yield Curve 


Based** 

Based** 

The basis on which the rates has been determined is as follow: 



Discount Rate- GRAP 25 defines the determination of the Discount rate assumption to be used as follows: The discount rate 
that reflects the time value of money is best approximated by reference to market yields at the reporting date on government 
bonds. Where there is no deep market in government bonds with a sufficiently long maturity to match the estimated maturity of 
all the benefit payments, an entity uses current market rates of the appropriate term to discount shorter term payments, and 
estimates the discount rate for longer maturities by extrapolating current market rates along the yield curve. We used the 
nominal and real zero curves as at 30 June 2019 supplied by the JSE to determine our discount rates and CPI assumptions at 
each relevant time period. In the event that the valuation is performed prior to the effective valuation date, we use the prevailing 
yield at the time of performing our calculations. We have changed this methodology from a point estimate in order to present a 

more accurate depiction of the liability. 



Medical Aid Inflation 



The Medical Aid Contribution Inflation rate was set with reference to the past relationship between the (yield curve based) 
Discount Rate for each relevant time period and the (yield curve based) Medical Aid Contribution Inflation for each relevant time 

period. South Africa has experienced high health care cost inflation in recent years. 

The annualised compound rates of increase 

for the last ten years show that registered medical aid schemes contribution inflation outstripped general CPI by almost 3% year 
on year. We do not consider these increases to be sustainable and have assumed that medical aid contribution increases 

would out-strip general inflation by 2% per annum over the foreseeable future. 




48 





Umzinyathi District Municipality 

Annual Financial Statements for the year ended 30 June 2019 

Notes to the Annual Financial Statements 

Figures in Rand 2019 2018 


17. Employee Benefit Obligations (continued) 

Average Retirement Age 

The average retirement age for all active employees was assumed to be 63 years. This assumption implicitly allows for ill-health 
and early retirements.. 

Normal Retirement Age 

The normal retirement age (NRA) for all active employees was assumed to be 65 years. 

Mortality Rates 

Mortality before retirement has been based on the SA 85-90 mortality tables. These are the most commonly used tables in the 
industry. Mortality post-employment (for pensioners) has been based on the PA (90) ultimate mortality tables. No explicit 
assumption was made about additional mortality or health care costs due to AIDS. 

Spouses and Dependants 

We assumed that the marital status of members who are currently married will remain the same up to retirement. It was also 
assumed that 90% of all single employees would be married at retirement with no dependent children. Where necessary it was 
assumed that female spouses would be five years younger than their male spouses at retirement and vice versa. 

Financial Variables 

Normal Salary Inflation Rate 

We have derived the underlying future rate of consumer price index inflation (CPI inflation) from the relationship between the 
(yield curve based) Conventional Bond Rate for each relevant time period and the (yield curve based) Inflation-linked Bond rate 
for each relevant time period. Our assumed rate of salary inflation was set as the assumed value of CPI plus 1%. 

The salaries used in the valuation include an assumed increase on 01 July 2019 were as follows: 

Aqe Band Promotional Increase 


20 

5% 

25 

4% 

30 

3% 

35 

2% 

40 

1% 

45+ 

0% 


The next salary increase was assumed to take place on 01 July 2020. 

Withdrawal assumption 

The table below shows the annual withdrawal rate for the current and previous valuation, differentiated by age 


Age 2019 2019 2018 2018 



Withdrawal 

Withdrawal 

Withdrawal 

Withdrawal 


Rate Males % 

Rate Females 

Rate Males % 

Rate Females 



% 


% 

20-24 

16 

24 

16 

24 

25-29 

12 

18 

12 

18 

30-34 

10 

15 

10 

15 

35-39 

8 

10 

8 

8 

40-44 

6 

6 

6 

6 

45-49 

4 

4 

4 

4 

50-54 

2 

2 

2 

2 

55-59 

1 

1 

1 

1 


49 





Umzinyathi District Municipality 

Annual Financial Statements for the year ended 30 June 2019 

Notes to the Annual Financial Statements 

Figures in Rand 2019 2018 


17. Employee Benefit Obligations (continued) 

Long Service Awards Liabilities 

Long service benefits are awarded in the form of a number of leave days awarded once an employee has completed a certain 
number of years in service. We have converted the awarded leave days to a percentage of annual salary by assuming there are 
250 working days per year. The expected value of each employee’s long service award is projected to the next interval by 
allowing for future salary growth. The table below contains a summary of the benefit policy: 


Completed Years of Service 


10 

15 


Total Long Service 
Benefit Award (% of 
Annual Salary) 

4% 

8% 


Formula used to 
calculate Total Long 
Service Benefit Award 
(10/250)*Annual Salary 
(20/250)*Annual Salary 


20, 25, 30, 35, 40, and 45 


12 % 


(30/250)*Annual Salary 


Membership Data 

Membership Data- The key features of the membership data used in the current and prior valuation are summarised below; 


Current Employees 

Males 

Females 

Number of active employees 

102 

60 

Subsidy weighted average age 

42,9 

39.8 

Subsidy weighted average past service 

9,1 

8,5 

Number of spouses 

34 

34 

Average annual salary in rands 

1710 

1710 

18. Long-Term Liability 

uThukela Water 

64 191 401 

64 191 401 

There's a dispute between uThukela water (Pty) Ltd and Umzinyathi 

District Municipality as uThukela water (Pty) Ltd claims that 

Umzinyathi municipality owes an amount of R110 734 609 for bulk water services provided but can only prove an amount of 
R64 191 401. 

19. Service Charges 

Water Re-connection Fee 

357 308 

57 671 

Sewerage and Sanitation Charges 

11 521 138 

10 517 244 

Sale of Water 

51 855 813 

57 507 776 

Cost of Free Basic 

(1 315 797) 

(8 718 074) 


62 418 462 

59 364 617 

20. Rental of Facilities and Equipment 

Rental of Premises 

399 657 

341 974 

Rental of Staff Houses 

69 200 

69 200 


468 857 

411 174 

The amount received on the investment property for rental of premises owned by the municipality totals to R 468 857. 

21. Interest Earned on Outstanding Debtors 

Interest earned on outstanding debtors 

18 771 234 

14 116 532 


50 






Umzinyathi District Municipality 

Annual Financial Statements for the year ended 30 June 2019 


Notes to the Annual Financial Statements 


Figures in Rand 

2019 

2018 

22. Other Income 



Insurance claim refunds (assets) 

264 367 

338 492 

Handling Fees 

872 748 

- 

Sale of tender documents 

90 747 

330 740 


1 227 862 

669 232 

23. Interest Earned on Investments 



Interest Revenue 

Bank 

11 309 242 

16 934 290 

24. Government Grants and Subsidies 



Operating Grants 

Equitable Share 

325 056 404 

291 518 056 

LG SETA Grant 

348 413 

199 360 

Operational Government Grants 

7 305 884 

3 897 549 


332 710 701 

295 614 965 

Capital Grants 

Capital Government Grants 

297 565 000 

303 530 596 


630 275 701 

599 145 561 

Equitable Share 



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

All registered indigents receive a monthly subsidy of 6 kilo litres @ R 7.59 Exci of Vat, which is funded from the grant. 

MIG 



Current-year receipts 

184 485 000 

178 941 000 

Conditions met - transferred to revenue 

(184 485 000) 

(178 941 000) 


- 

- 

Conditions 



Municipalities must prioritise MIG for eligible beneficiaries and infrastructure that includes: 

basic residential infrastructure forthe 

poor for water, sanitation, roads, waste management, streetlighting, community facilities as well as associated municipal bulk 
and connector infrastructure new or upgrading of municipal bulk, connector and reticulation infrastructure to support existing 


areas and the formalisation of settlements renewal of eligible infrastructure servicing the poor subject to the confirmation by the 
relevant sector department of the state of infrastructure and a commitment from the municipality of how on-going operations and 
maintenance of the renewed infrastructure will be funded and performed maintenance of roads infrastructure mainly servicing 
the poor. 


51 





Umzinyathi District Municipality 

Annual Financial Statements for the year ended 30 June 2019 

Notes to the Annual Financial Statements 

Figures in Rand 2019 2018 


24. Government Grants and Subsidies (continued) 
Rural Transport Services Infrastructure Grant 


Balance unspent at beginning of year 

749 954 

547 492 

Current-year receipts 

2 280 000 

2 275 000 

Conditions met - transferred to revenue 

(2 280 000) 

(1 525 046) 

Adjustments through Equitable Share Allocation 

(749 954) 

(547 492) 


- 

749 954 


Conditions 


District municipalities must provide local municipalities with validated information from the condition data collected to enable 
municipalities to identify and prioritise road maintenance requirements within their own budgets, to improve the condition and 
extend the lifespan of road infrastructure. District municipalities must participate in grant management structures, including 
attending quarterly rural RAMS meetings. 

National Treasury did not approve the rollover of the unspent grant of R749 954, which was returned to the National Revenue 
fund in the current year. 

Expanded Public Works Programme 

Current-year receipts 5 109 000 2 444 000 

Conditions met - transferred to revenue (5 109 000) (2 444 000) 


Conditions 


EPWP projects must comply with the project selection criteria determined in the EPWP grant manual, the EPWP guidelines set 
by Department of Public Works (DPW) and the Ministerial Determination updated annually on 1 November each year Eligible 
municipalities must sign a funding agreement with the DPW before the first grant disbursement, with their final EPWP project 
list attached.Reports must be loaded on the EPWP reporting system within 15 days after the end of every quarter in order for 
progress to be assessed. Municipalities must maintain beneficiary and payroll records as specified in the audit requirements in 
the EPWP grant manual.The EPWP grant cannot be used to fund the costs of permanent municipal personnel; however, a 
maximum of five per cent of the grant can be used to fund contract based capacity required to manage data capturing and on- 
site management costs related to the use of labour intensive methods. The EPWP grant can only be utilised for EPWP 
purposes, for the projects approved in each municipality's EPWP project list. To receive the first planned grant disbursement, 
eligible municipalities must submit a signed Incentive. Subsequent grant disbursements are conditional upon eligible 
municipalities reporting quarterly on EPWP performance within the required timeframes. Municipalities must implement their 
approved EPWP project list and meet agreed job creation targets. EPWP branding must be incorporated on any existing 
signage as per corporate identity manual. 


52 





Umzinyathi District Municipality 

Annual Financial Statements for the year ended 30 June 2019 

Notes to the Annual Financial Statements 

Figures in Rand 2019 2018 


24. Government Grants and Subsidies (continued) 


Regional Bulk Infrastructure Grant 


Balance unspent at beginning of year 

Current-year receipts 

Conditions met - transferred to revenue 

Other 


40 000 000 
(40 000 000) 


29 536 792 
80 920 000 
(80 920 000) 
(29 536 792) 


Conditions 


The Regional Bulk Infrastructure Grant (RBIG) is intended to fund the social component of regional bulk water and waste water 
projects approved by the Department of Water and Sanitation (DWS), unless arguments for exemption based on affordability 
are recommended by DWS and approved by National Treasury. This grant can be used to build enabling infrastructure required 
to connect or protect water resources over significant distances with bulk and reticulation systems. The need for a bulk 
infrastructure solution must be confirmed and accepted by DWS through the regional bulk master planning process. Afinancing 
plan with associated co-funding agreements must be in place prior to implementation of RBIG funded projects. All sources of 
funding for the full cost of the project must be outlined in the IRS and the funding agreement RBIG payments will be made (IA) 
based on invoices for work done. All projects must be aligned with and referenced to Integrated Development Plans (IDPs) and 
Water Services Development Plans (WSDPs) as well as a detailed plan which shows alignment of RBIG projects with those 
funded through the Municipal Infrastructure Grant, Municipal Water Infrastructure Grant and the Water Services Operating 
Subsidy Grant ,A transfer plan must be developed and agreed to prior to the commencement of any new projects. 

Water Services Infrastructure Grant 

Balance unspent at beginning of year 36 548 450 

Current-year receipts 70 800 000 

Conditions met - transferred to revenue (70 800 000) 

Adjustment through Equitable Share Allocation (36 548 450) 

' ~ 36 548 450 


6 634 773 
78 693 000 
(42 144 550) 
(6 634 773) 


Conditions 


To facilitate the planning and implementation of various water and sanitation projects to accelerate backlog reduction and 
improve the sustainability of services in prioritised district municipalities, especially in rural municipalities. Provide interim, 
intermediate water and sanitation services that ensure provision of services to identified and prioritised communities, including 
through spring protection, drilling, testing and equipping of boreholes and on-site solutions.To support drought relief projects in 
affected municipalities. 

National Treasury did not approve the rollover of the unspent grant of R 36 548 450, which was returned to the National 
Revenue fund in the current year. 


53 






Umzinyathi District Municipality 

Annual Financial Statements for the year ended 30 June 2019 

Notes to the Annual Financial Statements 

Figures in Rand 2019 2018 


24. Government Grants and Subsidies (continued) 

Financial Management Grant 

1 320 000 1 250 000 

(1 320 000) (1 250 000) 


Current-year receipts 

Conditions met - transferred to revenue 


Conditions 


FMG funds can be used towards the following: establishment of a Budget and Treasury Office (BTO) with positions filled by 
appropriately qualified personnel establishment of SCM capacity, an Internal Audit unit and Audit Committees, at least five 
interns appointed over a multi-year period on-going review, revision and submission of FMG support plans to National Treasury 
that address weaknesses in financial management acquisition, upgrade and maintenance of financial management systems to 
produce multi-year budgets, in-year reports, Service Delivery and Budget Implementation Plans, Annual Financial Statements, 
annual reports and automated financial management practices including the municipal Standard Chart of Accounts review and 
adoption of a delegation system support the training of municipal officials in financial management towards attaining the 
minimum competencies, as regulated in Government Gazette 29967 of June 2007 preparation and timely submission of annual 
financial statements for audits support implementation of corrective actions to address audit findings in municipalities that 
received adverse and disclaimer opinions technical support in financial management to municipalities must include the transfer 
of skills to municipal officials, the preparation of a financial recovery plan and the implementation thereof, where appropriate, 
implementation of financial management reforms and addressing shortcomings identified in the Financial Management 
Capability Maturity Model (FMCMM) Assessment Report for that municipality, ensuring timely submission of the FMG support 
plan consistent with the conditions of the grant, Regular, timely submission of reports with completed information, Expenditure 
must be maintained at appropriate levels. 

Shared Services Development Grant 

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

126 884 


126 884 30 433 

450 000 300 000 

(576 884) (203 549) 


Conditions 


Optimise planning function and resources in the district to increase efficieny and to reduce cost of service. Create an 
environment of learning where jounior and inexperienced staff can be mentored by more senior officials. Promote continuity 
where the loss of one staff member should not disprut services. Promote integration and alignment (IDP-Spatials etc). 


54 






Umzinyathi District Municipality 

Annual Financial Statements for the year ended 30 June 2019 

Notes to the Annual Financial Statements 

Figures in Rand 2019 2018 


24. Government Grants and Subsidies (continued) 

District Growth and Development Summit Grant 

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

300 000 


300 000 


(300 000) 


300 000 


Conditions 


The planned Summit is envisaged to strengthen the public private collaborative approach towards the achievement of the KZN 
Vision 2035 in an integrated, inclusive and sustainable manner. Furthermore, the summit will also inform the work of the District 
Development Agency including strengthening the corporate governance expectations. The planned Summit is envisaged to 
strengthen the public private collaborative approach towards the achievement of the KZN Vision 2035 in an integrated, inclusive 
and sustainable manner. Furthermore, the summit will also inform the work of the District Development Agency including 
strengthening the corporate governance expectations. 

25. Revenue 


Government Grants and Subsidies 

630 275 701 

599 145 561 

Actuarial Gain from Post Retirement Benefit 

2 827 681 

4 718 000 

Interest Earned- Outstanding Debtors 

18 771 234 

14 116 532 

Interest Received - Investment 

11 309 242 

16 934 290 

Other Income 

1 227 862 

669 232 

Gain on disposal of assets 

- 

470 750 

Rental of Facilities and Equipment 

468 857 

411 174 

Service Charges 

62 418 462 

59 364 617 

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

727 299 039 

695 830 156 

Service Charges 

62 418 462 

59 364 617 

Rental of Facilities and Equipment 

468 857 

411 174 

Gain on disposal of assets 

- 

470 750 

Other Income 

1 227 862 

669 232 

Interest Received on Investment 

11 309 242 

16 934 290 

Interest Earned on Outstanding Debtors 

18 771 234 

14 116 532 


94 195 657 

91 966 595 


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

Taxation Revenue 

Actuarial Gain Post Retirement Benefit 

Transfer Revenue 

Government Grants and Subsidies 


2 827 681 

4 718 000 

630 275 701 

599 145 561 


55 





Umzinyathi District Municipality 

Annual Financial Statements for the year ended 30 June 2019 


Notes to the Annual Financial Statements 


Figures in Rand 

2019 

2018 

26. Employee Related Costs 

Acting Allowances 

2 440 422 

1 952 883 

Basic 

94 025 363 

86 201 037 

Bonus 

6 903 441 

6 577 639 

Defined Contribution Plans 

385 636 

320 684 

Housing Benefits and Allowances 

695 604 

1 057 409 

Leave Provision 

3 444 514 

2 824 902 

Medical aid - company contributions 

4 188 081 

4 192 227 

Pension Contributions 

12 554 039 

11 556 764 

Telephone Allowances 

421 412 

466 899 

Travel Allowances 

2 500 247 

2 854 246 

Overtime 

9 842 535 

7 696 898 

SDL 

1 255 886 

- 

Bargaining Council and Other 

2 865 679 

2 524 643 

UIF 

682 717 

645 455 

142 205 576 

128 871 686 

Remuneration of Municipal Manager 

Annual Remuneration 

654 766 

422 898 

Acting Allowance 

27 681 

41 618 

Car Allowance 

259 627 

129 100 

Telephone 

18 000 

10 500 

Housing 

124 116 

69 911 

Other 

43 109 

- 


1 127 300 

674 027 

The Municipal Manager had been suspended and there had been an acting Municipal Manager appointed during the year. 

Remuneration of Chief Financial Officer 

Remuneration of Chief Finance Officer 

Annual Remuneration 

150 075 

1 030 304 

Acting Allowances 

44 609 

36 663 

Car Allowance 

30 000 

332 097 

Housing Allowance 

7 304 

111 653 

Telephone 

4 500 

27 277 

Other 

41 319 

74 304 

The Chief Financial Officer position was appointed during the year. 

277 807 

1 612 298 

Remuneration of Senior Manager Community Services 

Acting Allowance 

- 

40 775 

Telephone 

- 

- 

I 

- 

40 775 

The position for Senior Manager Community is vacant and there is no official acting on the position 




56 






Umzinyathi District Municipality 

Annual Financial Statements for the year ended 30 June 2019 


Notes to the Annual Financial Statements 


Figures in Rand 

2019 

2018 

26. Employee Related Costs (continued) 



Remuneration of Senior Manager Technical Services 



Annual Remuneration 

704 474 

615 135 

Car Allowance 

101 184 

199 365 

Housing Allowance 

74 937 

114 819 

Telephone 

21 000 

14 007 

Other 

37 254 

87 217 


938 849 

1 030 543 

Remuneration of Senior Manager Corporate Services 



Annual Remuneration 

471 281 

537 485 

Acting Allowance 

- 

61 161 

Car Allowance 

102 449 

66 150 

Housing Allowance 

36 292 

55 592 

Telephone 

13 500 

13 500 

Other 

59 338 

203 311 


682 860 

937 199 

Remuneration of Senior Manager Planning and Development 



Annual Remuneration 

821 656 

822 459 

Car Allowance 

71 518 

69 600 

Housing Allowance 

61 440 

56 687 

Telephone 

18 000 

18 000 

Other 

110 203 

27 245 


1 082 817 

993 991 

27. Remuneration of Councillors 



Mayor 

1 181 369 

1 007 283 

Deputy Mayor 

- 

316 165 

Mayoral Committee Members 

814 569 

864 215 

Speaker 

674 047 

513 718 

Councillors 

2 441 679 

2 558 272 


5 111 664 

5 259 653 

In-kind benefits 



The Mayor, Deputy Mayor and Speaker are full-time. Each is provided with an office and secretarial support at the cost of the 

Council. 



The Mayor, the Deputy Mayor and Speaker each have the use of separate Council owned vehicles for official duties. 


The Mayor, the Deputy Mayor and Speaker have bodyguards. 




57 






Umzinyathi District Municipality 

Annual Financial Statements for the year ended 30 June 2019 


Notes to the Annual Financial Statements 


Figures in Rand 

2019 

2018 

28. Depreciation and Amortisation 

Total Depreciation and Amortisation 

94 331 424 

90 764 887 

Depreciation and Amortisation by asset class 

Infrastructure 

82 944 829 

83 259 212 

Investment Property 

38 668 

38 668 

Buildings 

961 759 

961 759 

Plant and Equipment 

5 186 253 

2 607 798 

Motor Vehicles 

3 783 457 

2 825 846 

Furniture and Equipment 

1 184 495 

970 690 

Intangible Assets 

231 963 

100 914 


94 331 424 

90 764 887 

29. Finance Costs 

Interest on Loan 

_ 

86 899 

Interest on Late Payment of Suppliers 

73 424 

42 716 

30. Lease Rentals on Operating Lease 

73 424 

129 615 

Premises 

Contractual Amounts 

Lease rentals on operating lease - Other 

141 230 

128 390 

Contractual amounts 

478 096 

677 775 


619 326 

806 165 

31. Provision for Debt Impairment 

Contributions to debt impairment provision 

11 259 684 

67 384 645 

32. Bad Debts Written Off 

Bad Debts Written Off 

Bad Debts were written off on on the households only 

93 636 030 

" 

33. Bulk Purchases 

Water 

16 624 231 

16 089 868 


5 494 295 kilo litres of water was purchased @ R3.48 per litre. 


58 






Umzinyathi District Municipality 

Annual Financial Statements for the year ended 30 June 2019 


Notes to the Annual Financial Statements 


Figures in Rand 

2019 

2018 

34. Contracted Services 



Outsourced Services 

Burial Services 

291 185 

- 

Security Services 

8 582 105 

6 357 161 

Sewerage Services 

2 048 977 

- 

Consultants and Professional Services 

Business and Advisory 

2 383 361 

- 

Infrastructure and Planning 

775 328 

- 

Legal Fees 

6 257 212 

3 025 876 

Contractors 

Maintenance of Unspecified Assets 

84 156 960 

192 952 603 

Maintenance of Buildings and Facilities 

10 124 

217 132 

Maintenance of Equipment 

- 

183 426 

Artists and Performers 

128 550 

- 


84 295 634 

193 353 161 

104 633 802 

202 736 198 


59 






Umzinyathi District Municipality 

Annual Financial Statements for the year ended 30 June 2019 


Notes to the Annual Financial Statements 


Figures in Rand 

2019 

2018 

35. General Expenditure 



Advertising 

4 324 767 

2 302 052 

Auditors remuneration 

3 238 182 

3 279 952 

Bank charges 

96 417 

108 864 

Cleaning services 

43 253 

50 548 

Bursaries 

288 648 

104 564 

Consumables 

71 277 132 

- 

Supplier Development Programme 

1 837 908 

- 

Transport Costs 

938 050 

- 

Entertainment 

8 335 

19 083 

Travel and Subsistence 

6 939 685 

- 

Catering 

2 197 685 

- 

Hiring of vehicles 

4 187 662 

1 869 598 

Commission 

114 076 

- 

Pauper Burials 

15 074 553 

- 

Conferences and seminars 

- 

184 285 

IT expenses 

5 174 017 

3 231 047 

Medical Services 

170 221 

- 

Stage and Sound Crew 

69 000 

- 

Hiring of new staff members 

306 095 

- 

Reasearch Expenses 

147 500 

- 

Fuel and oil 

- 

3 305 461 

IDP sector plans 

- 

627 104 

Protective Clothing 

1 776 166 

- 

LED project costs 

- 

1 825 690 

Subscriptions and membership fees 

- 

1 507 289 

Telephone and fax 

1 539 482 

781 020 

Travel - local costs 

- 

4 476 293 

Water and electricity costs 

20 582 567 

22 542 849 

Utilities - Rates 

- 

988 538 

Uniforms 

- 

92 436 

Insurance costs 

1 247 227 

1 481 020 

Sports and culture programmes 

212 830 

1 542 979 

Event Promoters 

357 027 

7 063 

Awards 

72 200 

- 

Disaster relief 

- 

373 718 

Subscription Fees 

3 161 421 

- 

Mayorai imbizo 

- 

2 422 829 

Human resource development 

- 

558 581 

Sampling of water, milk and food 

- 

30 302 

Learnerships 

6 174 226 

- 

Other expenses 

200 000 

274 574 

Management Fee 

572 476 

- 

Registration Costs 

142 612 

- 

Specimen and Samples 

49 979 

- 

Seating Allowance 

157 034 

- 

Fire Services 

15 605 

- 


152 694 038 

53 987 739 


60 






Umzinyathi District Municipality 

Annual Financial Statements for the year ended 30 June 2019 

Notes to the Annual Financial Statements 

Figures in Rand 2019 2018 


36. Prior Period Errors 

The municipality has restated the payables from exchange transactions (Trade payables) in the 2016/17 financial yeardue to an 
ommission of bonus accrual that was never included in the financial statements. The restatement to accumulated surplus 
amounts to R 3 535 139. 

The municipality has restated the items of tangible assets and intangible assets such as Investment Property, Intangible Assets, 
Property, Plant and Equipment and Infrastructure due to not having an asset register that agree with the financial system. The 
municipality has restated the above items from 2016/17 year by restating the accumulated surplus, the depreciation and 
amortisation for 2018 to effectively correct the asset register. 

The municipality has restated the debt impairment provision that was provided for in the prior year because there was an error 
in the calculation and the application of the debt impairment provsion policy. The municipality has corrected the error by 
restating the debt impairment and consequently the receivables from exchange transactions. 

The municipality has restated the unspent grants for prior year due to a recognition of a sundry debtor based on a DORA 
Schedule. There has been a new DORA allocation schedule that was rolled out, as such the one used in the prior year has 
been phased out. 

The municpality conducted an Internal Audit Review on supplier invoices to confirm whether the municipality was not over- 
charged. It was found that the municipality has been over charged. The recognition of a debtor was imperative as a result a prior 
period expense re-allocation was done. 

The interest on late payments of suppliers was not re-allocated to finance costs in the prior year, the municipality has since 
reallocated the expense from general expenses to finance costs. 

The municipality had understated the Actuarial Gain and the Post Retirement Expense in the prioryear, as such these amounts 
could not be agreed directly to the actuary report. The understatement on the line items has since been corrected through a 
reclassification of the expense. 

Legal Fees and Security expenses were allocated under general expenses in the prior year. These expenses have been re- 
allocated to contracted services due to their nature. 

Adjustment for errors in the prior year is as follows: 


Statement of Financial Position 2016/2017 FY 


Net Assets at 01 July 2017 

- 1 483 

774 

148 

Payables from ExchangeTransactions 

- (3 

535 

139) 

Correction of Infrastructure Assets 

- (111 

682 

696) 

Correction of Intangible Assets 

1 

835 

327 

Correction of Property, Plant and Equipment 

16 

551 

363 

Correction of Investment Property 

- 

(6 

747) 


- 1 386 

936 

256 

Statement of Financial Performance - 2017/18 FY 




Surplus previously reported 

- 113 

761 

971 

Bonus accrual movement for the year 

( 

[511 

762) 

Depreciation and Amortisation 

- (22 

874 

078) 

Debt Impairment 

5 

386 

993 

Contracted Services 

- 

(13 

297) 

Share in Deficit of Associate 

- (3 

730 

741) 

Gain on Sale of Assets 


5 

169 

General Expenditure 

3 

045 

492 


95 

027 

029 


61 






Umzinyathi District Municipality 

Annual Financial Statements for the year ended 30 June 2019 

Notes to the Annual Financial Statements 

Figures in Rand 2019 2018 


37. Reclassification of Expenditure 


Expenditure items 

Reason 

Amount 

Actuarial Gain 

Reclassification of 
the expenditure 
based on the GRAP 

25 report disclosure 

(3 500 229) 

Post Retirement Benefit Expense 

Reclassification of 
the expenditure 
based on the GRAP 

25 report disclosure 

3 500 229 

Finance Cost 

Reclassification on 
the nature of the 
expenditure 

42 716 

General Expenditure 

Reclassification on 
the nature of the 
expenditure 

(42 716) 

General Expenditure - Legal Costs 

Reclassification on 
the nature of the 
expenditure 

(3 025 876) 

Contracted Services - Legal Cost 

Reclassification on 
the nature of the 
expenditure 

3 025 876 

Contracted Services - Security 

Reclassification on 
the nature of the 
expenditure 

6 357 161 

General Expenditure - Security 

Reclassification on 
the nature of the 

(6 357 161) 


expenditure 


Liabilities and Assets 

Reason 

Amount 

Receivables on Non-Exchange Transactions 

Reclassification due 
to phasing out of 
DORA 

(18 013 000) 

Unspent Grants Receipts and Grants 

Reclassification due 
to phasing out of 
DORA 

18 013 000 

Receivables on Non-Exchange Transactions 

Reclassification as a 
result on Internal 

Audit Findings 

3 107 250 

Contracted Services 


(3 107 250) 


62 






Umzinyathi District Municipality 

Annual Financial Statements for the year ended 30 June 2019 


Notes to the Annual Financial Statements 


Figures in Rand 

2019 

2018 

38. Cash Generated from Operations 

Surplus 

115 197 903 

95 027 031 

Adjustments for: 

Depreciation and Amortisation 

94 331 424 

90 764 887 

Loss on Sale of Assets 

(10 165) 

(465 581) 

Share in Deficit of Joint Venture 

10 050 139 

30 655 670 

Finance Costs 

73 424 

129 615 

Debt Impairment 

(11 259 683) 

67 384 645 

Movements in Employment Benefit Obligation 

543 319 

(601 000) 

Movements in Provisions 

2 115 446 

1 199 584 

Movement in Accruals 

34 919 841 

(13 903 539) 

Movement in Retentions 

- 

(93 740 864) 

Bad Debts Written Off 

93 636 030 

109 762 282 

Other non-cash items 

(90 408 204) 

6 100 

Bonus Accrual Movement 

231 924 

511 762 

Changes in working capital: 

Inventories 

(10 291 673) 

(530 174) 

Receivables from Exchange Transactions 

14 586 916 

6 455 863 

Other receivables from non-exchange transactions 

(256 893) 

(17 654 386) 

Payables From Exchange Transactions 

3 019 007 

57 609 057 

VAT 

(964 291) 

576 127 

Unspent Conditional Grants and Receipts 

(37 725 287) 

- 

Consumer Deposits 

(7 619) 

(8 107) 


217 781 558 

333 178 972 

39. Auditors' Remuneration 

External Audit Fees - Auditor General (AG) 

3150189 

3 109 446 

Audit Committee Costs 

87 993 

170 506 


3 238 182 

3 279 952 

40. MIG Expenditure 

Douglas Water Supply 

29 340 005 

1 765 730 

Makhabeleni Water Supply 

- 

277 442 

Mbono Mkhuphula Sanitation 

7 595 743 

13 220 170 

Mbono Water Supply 

312 409 

25 387 695 

Mthembu Water Supply 

3 188 056 

1 838 403 

Muden Water Suppiy 

65 875 761 

31 353 103 

Ngubukazi Water Supply 

- 

443 660 

Nquthu Sanitation 

4 232 441 

8 037 915 

Ntinini Water Supply 

35 900 800 

2 941 813 

Opathe Water Supply 

6 587 422 

2 831 516 

PMU Support 

- 

7 700 970 

Pomery Sanitation 

- 

1 747 889 

Umsinga Water Supply 

30 003 650 

78 803 744 

Umvoti Sanitation 

1 448 713 

2 590 950 


184 485 000 

178 941 000 


63 






Umzinyathi District Municipality 

Annual Financial Statements for the year ended 30 June 2019 

Notes to the Annual Financial Statements 

Figures in Rand 2019 2018 


41. Commitments 
Total Commitments 
Total Commitments 

Authorised Capital Expenditure 233 878 592 275 894 798 

Authorised Operational Expenditure 

233 878 592 275 894 798 


This committed expenditure relates to capital commitments and will be financed by government grants. 

Commitments are committed for more than a period of twelve months. 

Capital Commitments 

Approved and contracted 64 692 068 27 742 258 


42. Contingencies 

Umvoti / uThukela Water (Pty) Ltd 

Umvoti presented to the municipality an outstanding balance of R407 585 owing by uThukela Water (Pty) Ltd the water service 
authority whom was responsible for the water reticulation function within the district. Umvoti has liaised with uThukela Water 
(Pty) Ltd to pay the outstanding balance however uThukela Water (Pty) Ltd has advised Umvoti that the debt be settled by 
Umzinyathi, since uMzinyathi took over the reticulation function on the Ist of July 2013. The dispute arises because neither 
uThukela Water (Pty) Ltd or Umvoti has submitted proof of the liability or debt in a form an invoice or any relevant supporting 
documentation. 

uThukela Water (Pty) Ltd 

There's a dispute of an amount of R43 400 474 between uThukela water (Pty) Ltd and Umzinyathi District Municipality as 
uThukela water (Pty) Ltd claims that the municipality owes an amount of R110 734 609 but can only prove an amount of R64 
191 401. 

Legal matters pending 

There are 16 litigations and value of claims pending against the municipality 

Umzinyathi District Municipality vs Consultant 

Consultant claims payment arising from a contract. Matter is ongoing, to be set down for hearing for rescission application on 6 
September 2018. Estimated liability costR12 207 011.64 

Umzinyathi District Municipality vs Supplier 

Supplier claims payment arising from a contract .The matter is ongoing. Estimated liability cost R7 733 444.18 Interest plus 
cost of suit. 


64 






Umzinyathi District Municipality 

Annual Financial Statements for the year ended 30 June 2019 

Notes to the Annual Financial Statements 

Figures in Rand 2019 2018 

42. Contingencies (continued) 

Umzinyathi District Municipality vs Supplier 

Supplier claims payment arising from a contract. Matter is on pre trial stage. Estimated liability cost R557 589.96 Interest plus 
cost of suit 

Umzinyathi District Municipality vs Supplier 

Supplier claims payment arising from a contract. Matter is on pre trial conference stage. Estimated liability cost R 25 470 919.09 

Umzinyathi District Municipality vs Resident 

Claim by resident for injury suffered due to open manhole. Matters adjourned sine die, condonation application opposed by the 
municipality. Estimated liability cost R300 000 

Umzinyathi District Municipality vs Supplier 

Supplier claims payment arising from a contract. Matter is on pre-trial conferencestage. Estimated liability cost R2 915 048.91 

Umzinyathi District Municipality vs Supplier 

Supplier is claiming payment arising from a contract termination. Matter is ongoing, pleadings have closed, parties are to 
convene a pre-trial conference. Estimated liability cost R 329 600.00 

Umzinyathi District Municipality vs Former Employee 

Former employee claims payment arising from a contract .The matter is ongoing. Estimated liability cost R1 230 847.92. 

Umzinyathi District Municipality vs Supplier 

Supplier claims payment arising from a contract .The matter is ongoing. Estimated liability cost R 68 306.07. 

Umzinyathi District Municipality vs Supplier 

Supplier claims payment arising from a contract. The matter is ongoing. Estimated liability cost R 132 226.78. 

Umzinyathi District Municipality vs Supplier 

Supplier claims payment arising from a contract .The matter is ongoing. Estimated liability cost R1 466 364.90. 

Umzinyathi District Municipality vs Former Employee 

Former employee claims payment arising from a contract .The matter is ongoing. Estimated liability cost R 418 877.04. 

Umzinyathi District Municipality vs Supplier 

Supplier claims payment arising from a contract .The matter is ongoing. Estimated liability cost R1 138 607.00. 

Umzinyathi District Municipality vs Supplier 

Supplier claims payment arising from a contract .The matter is ongoing. Estimated liability cost R10 854 744.24. 

Umzinyathi District Municipality vs Former Employee 

Former employee claims payment arising from a contract .The matter is ongoing. Estimated liability cost R100 000.00. 

Umzinyathi District Municipality vs Supplier 

Municipality has instituted civil proceedings against supplier. Claim amounting to R4 354 000.00. 


65 






Umzinyathi District Municipality 

Annual Financial Statements for the year ended 30 June 2019 

Notes to the Annual Financial Statements 

Figures in Rand 2019 2018 


43. Related Parties 


Related Party Balances 


Amounts included in Trade receivable (Trade Payable) regarding related parties 

uThukela Water (Pty) Ltd - Consumer Receipting 

uThukela Water (Pty) Ltd - Operations and Maintenance Outstanding Balance 
uThukela Water (Pty) Ltd - Creditor's Balance 


4 384 502 4 384 502 

(64 191 401) 64 191 401 

(1 493 693) 


Related Party Transactions 


Purchases from (sales to) related parties 

uThukela Water (Pty) Ltd - Bulk Water 

uThukela Water (Pty) Ltd - Services on Tayside Project 


16 637 517 16 122 160 

6 531 186 


44. Risk Management 
Liquidity Risk 


Liquidity risk is the risk that the municipality will not be able to meet its obligations as they fall due. 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. 

The municipality's approach is to ensure that sufficient liquidity is available to meet its liabilities when due. The municipality uses 
cash flow forecasts to ensure that sufficient cash is available to meet expected operating expenses. 

Credit Risk 


Financial Assets 


Cash and Cash Equivalents 

56 806 983 

150 841 372 

VAT Receivables 

16 159 143 

15 194 852 

Receivables from Exchange Transactions 

57 165 089 

71 752 005 

Receivables Non-Exchange Transactions 

12 016 591 

11 759 698 


142 147 806 

249 547 927 

Financial Liabilities 

Long Term Liability 

64 191 401 

64 191 401 

Payables From Exchange Transactions 

164 949 007 

134 757 999 

Consumer Deposits 

451 513 

459 131 


229 591 921 

199 408 531 


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. 

Receivables 

Receivables are amounts owing by consumers and are presented net of impairment loss. The municipality has a credit control 
policy in place and the exposure to credit risk is monitored continuously. The municipality establishes an allowance fordoubtful 
debts that represents its estimate of anticipated losses in respect of receivables. Payments of accounts of consumer debtors 
who are unable to pay, are negotiated in line with the 'credit control policy and terms of payments are agreed upon with the 
consumer. 

Cash and cash equivalents 

The municipality limits its exposure to credit risk by investing with only reputable financial institutions and within specific 
guidelines set in accordance with Council's approved investment policy. The municipality does not consider there to be any 
significant exposure to credit risk. 


66 





Umzinyathi District Municipality 

Annual Financial Statements for the year ended 30 June 2019 

Notes to the Annual Financial Statements 

Figures in Rand 2019 2018 


44. Risk Management (continued) 
Market Risk 


Interest rate risk 


The municipality's policy is to manage interest rate risk so that fluctuations in variable costs do not have a material impact on 
surplus. All long-term debt are at fixed rates. 

45. Irregular expenditure 

Opening balance 

Add: Irregular Expenditure - current year 

1 320 508 758 1 010 460 339 


1 010 460 339 742 692 011 

310 048 419 267 768 328 


Expenditure under investigations 


310 048 419 102 632 969 

1 010 460 339 328 321 272 

Irregular Expenditure on Employee Costs 


Current year 
Prior years 


Buthelezi S 
NtuliZR 
Manqele MA 
Lembede MM 
Mbatha SR 
Zondi VD 
Harrison VS 
Ngema HMN 


340 556 
98 083 
158 244 
103 780 
151 277 
345 709 
75 000 
141 898 


1 414 547 


An amount of irregular expenditure is excluvise of VAT. The municaplity is currently investigating the irregualr expenditure. 

46. Fruitless and Wasteful Expenditure 

Opening Balance 

Fruitless and Wasteful Expenditure 

485 038 411 614 


411 614 368 898 

73 424 42 716 


Late receipts on invoices by the municipality due to the mail being directed to UThukela Water instead of UDM after the take- 
over. The amount of fruitless and wasteful expenditure incurred in the current year is under investigation. 

Cashflow constraints led to non-compliance of payments of creditors within 30 days. 

47. 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. 

48. Events after the Reporting Date 

There were no events after reporting period. 


67 






Umzinyathi District Municipality 

Annual Financial Statements for the year ended 30 June 2019 


Notes to the Annual Financial Statements 


Figures in Rand 

2019 

2018 

49. Additional disclosure in terms of Municipal Finance Management Act Section 125 

Audit Fees 

Current year subscription / fee 

3 238 122 

3 279 952 

Amount paid - current year 

(3 238 122) 

(3 279 952) 

PAYE and UIF 

Current year subscription / fee 

22 798 409 

20 117 463 

Pension and Medical Aid Deductions 

Current year subscription / fee 

13 083 927 

4 104 989 

VAT 

VAT Receivable 

16 159 143 

15 194 852 


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


68 






Umzinyathi District Municipality 

Annual Financial Statements for the year ended 30 June 2019 

Notes to the Annual Financial Statements 

Figures in Rand 2019 2018 


49. Additional disclosure in terms of Municipal Finance Management Act Section 125 (continued) 
Councillors' and employees' arrear consumer accounts 

The following Councillors and Employees 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 


Yengwa MS - Councillor 

560 

11 878 

12 438 

Chambule BS - Councillor 

993 

1 326 

2319 

Munessar Ardeep 

326 

- 

326 

Zulu Vd 

5 

1 489 

1 494 

Mncube T E 

(539) 

- 

(539) 

Bonga Edward 

759 

- 

759 

Buthelezi A F 

1 100 

1 613 

2 713 

Mlambo R K 

256 

- 

256 

Mazibuko L B 

- 

(1 914) 

(1 914) 

Zulu L B 

1 212 

6 612 

7 824 

Madonsela Tc 

208 

- 

208 

Duma Nompumelelo 

- 

(195) 

(195) 

Kubheka T S 

(225) 

(130) 

(355) 

Mvelase Zuzile 

839 

- 

839 

Shangase Cb 

1 088 

628 

1 716 

Mawila Mp 

(394) 

- 

(394) 

Twala Nb 

66 

- 

66 

Ntuli Ds 

25 

- 

25 

Mnguni N M 

265 

306 

571 

Moodley S 

- 

42 

42 

Zungu Zanele 

501 

- 

501 

Thungo B P 

435 

- 

435 

Mtshali T C 

379 

6 633 

7 012 

Ndlovu Nzt 

- 

(92) 

(92) 

Majola N P 

776 

- 

776 

Maphumulo Sm 

250 

- 

250 

Nzimakwe N 

422 

810 

1 232 

30 June 2018 

Outstanding 

Outstanding 

Total 


less than 90 

more than 90 

R 


days 

days 



R 

R 


Mahaye TM & ML - Councillor 

2 020 

35 085 

37 105 

Yengwa MS - Councillor 

409 

9 929 

10 338 

Chambule BS - Councillor 

412 

1 020 

1 432 

Africa LM 

1 255 

8 729 

9 984 

Zulu VD 

63 

3 205 

3 268 

Mncube TE 

571 

1 288 

1 859 

Mkhwanazi SC 

1 492 

9 072 

10 564 

Madonsela TC 

817 

13 

830 

Shangase CB 

184 

110 

294 

Mawila MP 

456 

1 998 

2 454 

Mnguni NM 

257 

1 142 

1 399 

Moodley S 

- 

42 

42 

Zungu Z 

635 

463 

1 098 

Mtshali TC 

2 360 

5 282 

7 642 

Nzimakwe N 

415 

363 

778 


11 346 

77 741 

89 087 


69 






Umzinyathi District Municipality 

Annual Financial Statements for the year ended 30 June 2019 

Notes to the Annual Financial Statements 

Figures in Rand 2019 2018 


50. Deviation from Supply Chain Management Regulations 

Quotations: In terms of section 36 of the Municipal Supply Chain Management Regulations any deviation from the Supply Chain 
Management Policy needs to be approved/condoned by the Municipal Manager and noted by Council. Bids: In terms of section 
36 of the Municipal Supply Chain Management Regulations any deviation from the Supply Chain Management Policy needs to 
be approved/condoned by the Municipal Managerand noted by Council. 


SCM Regulations 36 

Expenditure Incurred 10 285 611 2 938 162 


51. Water Loss Distribution 



Water Produced per Water Treatment Plant 

Msinga Fabeni WTW 

4 551 

2 210 

Msinga Keats Drift WTW 

238 617 

180 334 

Msinga Sampofu (Tugela Ferry) WTW 

1 246 252 

1 295 883 

Msinga Sampofu Weir (Pomeroy) WTW 

33 308 

47 190 

Umvoti Makhabeleni WTW Meter 

414 396 

431 205 

Umvoti Greytown WTW 

879 636 

561 085 

Umvoti Muden WTW 

815 456 

776 176 

Umvoti Kranskop WTW 

177 501 

163 993 

Nquthu Isandlwana WTW 

93 006 

109 895 

Nquthu Nonqweni WTW 

408 297 

495 816 

Nquthu /Vant's Drift WTW 

2 672 848 

2 875 650 

Nquthu Qudeni WTW 

108 847 

96 268 

Endumeni Biggarsberg WTW 

5 062 261 

5 360 503 


12 154 976 

12 396 208 

Total Water Loss 

Total Water Produced 

(12 154 976) 

(12 396 208) 

Total Water Sold 

4 630 872 

5 502 097 


(7 524 104) 

(6 894 111) 


The monetary value of water loss is R26 183 881.92 (2018 R 21 716 449.65). 

The water loss percentage is 62% (2018, 56%). 

• Umzinyathi District Municipality is mostly dominated with rural arears 

• Most of our rural arears have stand pipes per standards set by Water Affairs 

• Other rural areas have no water infrastructure thus water tankers are delivering water to them and these tankers are 
getting waterfrom our plants and collection point sets in our water network 

• The municipality experienced a lot of burst pipes in our reticulation line due to aging infrastructure. 

• lllegal connections in most of our rural areas have huge impact in unaccounted water as they are most metered. 

• The municipality has experienced a lot of internal leaks from domestic consumers and there's a programme that the 
municipality will be running to fix these leaks. 

52. Transfer of functions Between entities not under common control 

Uthukela Water (Pty) Ltd is an entity of three WSA's, namely Amajuba DM, Newcastle LM and Umzinyathi DM. The interest in 
this joint venture is at 33,3%, 33,4% and 33,3% respectively. 

The voting rights are represented by the percentage shareholding in the entity. The transfer of function was initiated by the 
directive from the MEC: COGTA. 

It stipulated that the function, including the infrastructure assets must be transferred back to the WSA's. The process was 
started and completed by the 30 June 2014, This arrangement is currently in place. Referto Note 12 forfurtherdetails. 


70