TSANTSABANE LOCAL MUNICIPALITY Parameters to be completed for Current Year

Name of Authority Financial Year-end End of Next Year End of Current Year End of Previous Year End of Base Year Current Year Previous Year

Base Year

Next Financial Year Current Financial Year

Previous Financial Year

Comparative Financial Year

Start of Current Year

Start of Previous Year

Current Month Number

TSANTSABANE LOCAL MUNICIPALITY

30 June 2020

30 June 2021 30 June 2020 30 June 2019 30 June 2018 2020

2019

2018

2020/21 2019/20 2018/19 2019/20 / 2018/19 01 July 2019

01 July 2018

Colour Legend Headers Required in terms of GRAP - Check No Activity for Municipality Alternative Statement Not Applicable at Municipality Need more information Collection of Data to include Not Required for Interim FS

MSCOA specific

Dates (Upper Case)

30 JUNE 2021 30 JUNE 2020 30 JUNE 2019

30 JUNE 2018

TSANTSABANE LOCAL MUNICIPALITY

te

[These financial statements have not been audited]

ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2020

TSANTSABANE LOCAL MUNICIPALITY Annual Financial Statements for the year ended 30 June 2020

Index

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

Index General information 1-2 Approval of Annual Financial Statements 3

Report of the Auditor General

Statement of Financial Position 4 Statement of Financial Performance 5 Statement of Changes In Net Assets 6 Cash Flow Statement 7

Statement of comparison of budget and actual amounts - Statement of financial position 8-9

Statement of comparison of budget and actual amounts - Statement of financial performance 10-11

Statement of comparison of budget and actual amounts - Capital 12 Expenditure

Statement of comparison of budget and actual amounts - Cash 13-14 flow statement

Accounting Policies 15 -35

Notes to the Financial Statements 36 - 95

APPENDICES - Unaudited A Schedule of External Loans 96

F Disclosure of Grants and Subsidies In Terms of Section 123 of 97 MFMA, 56 of 2003

G Statement of Remuneration of Management 98 - 99

TSANTSABANE LOCAL MUNICIPALITY

Annual Financial Statements for the year ended 30 June 2020

General information

Legal form

Jurisdiction

Nature of business

Capacity of local authority Municipal demarcation code

Management structure

Municipal manager

Chief Financial Officer

Other heads of departments

Registered office

External auditors

NC085 - Local Municipality. The municipality's operations are governed by the Municipal Finance Management Act 56 of 2003, Municipal Structures Act 117 of 1998, Municipal Systems Act 32 of 2000, and various other acts and regulations.

Tsantsabane Local municipality is located in the north-eastern part of the Northern Cape Province in the ZF Mgcawu District. Cities/Towns:

Postmasburg Beeshoek

Tsantsabane Local Municipality is a South African Category B Local Municipality as defined in the Municipal Structures Act. The municipality performs functions as set out in the Constitution. This means that the Municipality provides services such as electricity, water, sewerage and refuse to the Community.

Low capacity (grade 2) NC085

The municipality’s senior management structure consists of the Municipal Manager and heads of the four main departments. The Office of the Municipal Manager includes management functions pertaining to municipal systems improvement and integrated development planning functions.

H Mathobela

LR Coakley

IC Nkadimang BLK Botha JJ Theys

Director Corporate Services Acting Director Technical Services Director Community Development

13 Springbok Street Postmasburg 8420

Telephone: 053 313 7300 Website: www.tsantsabane.gov.za

Auditor-General of South Africa

Private Bag X5013 Kimberley

TSANTSABANE LOCAL MUNICIPALITY

Annual Financial Statements for the year ended 30 June 2020

General information

Principle banker

Relevant legislation

Executive Mayor

Councillors

Standard Bank 32 Main Street Po Box 24 Postmasburg 8420

Municipal Finance Management Act Division of Revenue Act

The Income Tax Amendment Act

Value Added Tax Amendment Act Municipal Structures Act

Municipal Systems Act

Municipal Planning and Performance Management Regulations Housing Act

Skills Development Levies Amendment Act Employment Equity Act

Unemployment Insurance Act

Basic Conditions of Employment Act Supply Chain Management Regulations

M Mashila Ward 6 EE Poto Ward 1 M Daniels Ward 2 EEJ Phete Ward 3 KD Modise Ward 4 IK Tshabane Ward 5 M Mashila Ward 6 TJ Saulus Ward 7 AR Davids Proportional AJ Ruiters Proportional WC Julies Proportional D Esau Proportional JJ Swart Proportional OM Mabilo Proportional

TSANTSABANE LOCAL MUNICIPALITY

Annual Financial Statements for the year ended 30 June 2020 Approval of Annual Financial Statements

| am responsible for the preparation of these annual financial statements for the year ended 30 June 2020 which are set out on pages 1 to 99 in terms of section 126 (1) of the Municipal Finance Management Act and which | have signed on behalf of the municipality. The annual financial statements have been prepared in accordance with Generally Recognised Accounting Practice.

| acknowledge that | am ultimately responsible for the system of internal financial control and that the system of internal control provides reasonable assurance that the financial records can be relied on.

| have reviewed the municipality’s cash flow forecast for the year to 30 June 2020 and am satisfied that the municipality can continue in operational existence for the foreseeable future.

The external auditors are responsible for independently reviewing and reporting on the municipality's financial statements.

| certify that the remuneration of Councillors and in-kind benefits are within the upper limits of the framework envisaged in section 219 of the Constitution, read with the Remuneration of Public Officer Bearers Act and the Minister of Provincial and Local Government's determination in accordance with this Act.

Management has concluded that the financial statements present fairly the municipality's financial position, financial performance and cash flows for the year ended 30 June 2020.

The annual financial statements set out on pages 1 to 99, which have been prepared on the going concern basis, were approved by the accounting officer and were signed by:

31 October 2020 H Mathobela Date Municipal Manager

TSANTSABANE LOCAL MUNICIPALITY STATEMENT OF FINANCIAL POSITION AT 30 JUNE 2020

ASSETS

Current Assets

Inventories

Receivables from Exchange Transactions Receivables from Non-exchange Transactions VAT Receivable

Cash and Cash Equivalents

Operating Lease Receivables

Non-Current Assets Property, Plant and Equipment Intangible Assets

Investment Property

Heritage Assets

Total Assets

LIABILITIES

Current Liabilities

Consumer Deposits

Provisions

Payables from Exchange Transactions Unspent Conditional Grants and Receipts Bank Overdraft

Current Portion of Long-term Liabilities

Non-Current Liabilities Long-term Liabilities Employee Benefit Liabilities Non-current Provisions Total Liabilities

Total Assets and Liabilities

NET ASSETS Accumulated Surplus / (Deficit)

Total Net Assets

Note

NOnh whd

10 11

12 13 14 15

16

16 17 18

19

Actual

2019 Restated R

44,500,023

7,105,094 9,544,151 7,912,934 7,484,652 12,430,393 22,798

744,390,717

686,570,672 1,190,069 56,235,300 394,675

788,890,739

288,055,062

2,293,914 1,161,328 269,977,104 7,710,376

6,912,339

43,151,437

9,672,831 14,371,728 19,106,878

331,206,499

457,684,241

457,684,240

457,684,240

457,684,240

0.00

0.00

15,366,991.80

0.04

-15,366,991.40

TSANTSABANE LOCAL MUNICIPALITY STATEMENT OF FINANCIAL PERFORMANCE FOR THE YEAR ENDED 30 JUNE 2020

REVENUE

Revenue from Non-exchange Transactions Property Rates

Fines, Penalties and Forfeits

Licences and Permits

Transfers and Subsidies

Revenue from Exchange Transactions Service Charges

Sales of Goods and Rendering of Services Rental from Fixed Assets

Interest, Dividends and Rent on Land Earned Operational Revenue

Total Revenue

EXPENDITURE

Employee Related Costs Remuneration of Councillors Depreciation and Amortisation Impairment Losses

Interest, Dividends and Rent on Land Bulk Purchases

Contracted Services

Inventory Consumed

Operating Leases

Operational Costs

Loss on Disposal of Property, Plant and Equipment

Total Expenditure

DEFICIT FOR THE YEAR

Refer to Budget Statement for explanation of budget variances

58,570,538 124,738 842,075

60,083,375

103,996,172 298,855 337,813 886,753 233,709

2019 Restated R

27,695,225 416,780 1,287,056 62,423,559

96,735,935 210,231 410,380

1,130,716 188,730

225,374,028

190,498,612

73,261,235 5,477,125 32,324,301 71,086,465 17,814,335 58,474,459 19,860,765 1,993,432 2,299,211 19,287,159 4,501,026

306,379,513

72,890,576

5,517,384 31,198,705 37,447,089 16,358,795 60,336,121 24,586,106

1,905,168

3,158,550 18,616,224 27,204,633

299,219,350

(81,005,485)

(108,720,739)

TSANTSABANE LOCAL MUNICIPALITY STATEMENT OF CHANGES IN NET ASSETS FOR THE YEAR ENDED 30 JUNE 2020

Accumulated

Surplus/(Deficit) Total Net Assets

R R

Balance at 30 June 2018 569,049,008 569,049,008 Correction of Error (Note 40) (2,704,286) (2,704,286) Restated Balance 566,344,722 566,344,722

Correction of Error (Note 40) 60,257

Deficit for the year

Deficit for the year: Previously Reported (115,188,974) (115,188,974) Correction of Error (Note 40) 6,468,236 6,468,236 Balance at 30 June 2019 457,684,240 457,684,240

2020 Appropriations in 2020 1,625,770 1,625,770 Deficit for the year 81,005,485 81,005,485

Balance at 30 June 2020 378,304,525 378,304,525

TSANTSABANE LOCAL MUNICIPALITY CASH FLOW STATEMENT FOR THE YEAR ENDED 30 JUNE 2020

CASH FLOWS FROM OPERATING ACTIVITIES

Receipts

Property Rates

Transfers and Subsidies

External Interest and Dividends Received Service charges

Other Receipts

VAT Receivable / Payable

Payments

Employee Related Costs Remuneration of Councillors External Interest and Dividends Paid Suppliers Paid

NET CASH FLOWS FROM OPERATING ACTIVITIES CASH FLOWS FROM INVESTING ACTIVITIES Purchase of Property, Plant and Equipment

Purchase of Intangible Assets

Purchase of Investment Property

Proceeds on Disposal of Investment Property Proceeds on Disposal of Intangible Assets

NET CASH FLOWS FROM INVESTING ACTIVITIES

CASH FLOWS FROM FINANCING ACTIVITIES

Proceeds/(Repayment) of Borrowings NET CASH FLOWS FROM FINANCING ACTIVITIES

NET INCREASE / (DECREASE) IN CASH AND CASH EQUIVALENTS

Cash and Cash Equivalents at Beginning of Period Cash and Cash Equivalents at End of Period

Actual 2020 2019 Note Restated R R 15,377,396 27,272,214 57,976,732 54,755,683 886,753 1,130,716 66,304,351 95,207,519 6,469,445 (2,668,282) 2,149,167 120,309 (71,901,644) (71,468,639) (5,477,125) (5,517,384) (14,922,406) (14,067,986) (37,061,680) (78,170,304) 42 19,800,989 6,593,846 8 (12,024,136) (17,052,303) 9 - (25,205) 10 2,286,000 - (4,312,894) 1,900,647 406,567 - (13,644,463) (15,176,861) (6,436,910) 7,463,579 (6,436,910) 7,463,579 (280,384) (1,119,436)

12,430,393 13,549,829 6 12,150,009 12,430,393

TSANTSABANE LOCAL MUNICIPALITY STATEMENT OF COMPARISON OF BUDGET AND ACTUAL AMOUNTS FOR THE YEAR ENDED 30 JUNE 2020

30 June 2020

Description

FINANCIAL POSITION

Current Assets

Inventories

Receivables from Exchange Transactions Receivables from Non-exchange Transactions VAT Receivable

Cash and Cash Equivalents

Operating Lease Receivables

Non-Current Assets Property, Plant and Equipment Intangible Assets

Investment Property

Heritage Assets

Total Assets

Current Liabilities

Consumer Deposits

Provisions

Payables from Exchange Transactions Unspent Conditional Grants and Receipts Current Portion of Long-term Liabilities

Non-Current Liabilities Long-term Liabilities Employee Benefit Liabilities Non-current Provisions

Total Liabilities

Total Assets and Liabilities

Net Assets (Equity) Accumulated Surplus / (Deficit)

Total Net Assets

Original Budget Adjustment r Actual ; Budget Adjustments Budget Final Budget Outcome Variance R

535,000 - 535,000 535,000 389,392 (145,608) 61,960,000 - 61,960,000 61,960,000 12,736,927 (49,223,073) 34,040,000 - 34,040,000 34,040,000 14,743,555 (19,296,445) - - - - 5,335,485 5,335,485 7,052,000 - 7,052,000 7,052,000 15,292,314 8,240,314 - - - - 10,213 10,213 702,349,000 - 702,349,000 702,349,000 667,432,587 (34,916,413) 967,000 - 967,000 967,000 370,023 (596,977) 79,116,000 - 79,116,000 79,116,000 53,949,300 (25,166,700) 355,000 - 355,000 355,000 394,675 39,675 886,374,000 - 886,374,000 886,374,000 770,654,471 (115,719,529) 2,379,000 - 2,379,000 2,379,000 2,412,558 33,558 2,149,000 - 2,149,000 2,149,000 924,000 (1,225,000) 212,985,000 - 212,985,000 212,985,000 332,291,650 119,306,650 - - - - 6,765,366 6,765,366 - - - - 9,708,574 9,708,574 - 2,551,881 2,551,881 - - - - 14,667,000 14,667,000 21,671,000 - 21,671,000 21,671,000 19,886,610 (1,784,390) 239,184,000 - 239,184,000 239,184,000 392,349,945 153,165,945 647,190,000 - 647,190,000 647,190,000 378,304,526 | (268,885,474) 647,190,000 (350,000) 646,840,000 646,840,000 378,304,525 (268,535,475) 647,190,000 (350,000) 646,840,000 646,840,000 378,304,525 | (268,535,475)

Financial Position: Explanation of Variances between Approved Budget and Actual Reasons for Variances greater than 10% between Approved Budget and Actual Amount on the various items disclosed in the Statement of Financial Position are |

30 June 2020

Description

FINANCIAL PERFORMANCE Revenue from Non-exchange Transactions Property Rates

Fines, Penalties and Forfeits

Licences and Permits

Transfers and Subsidies

Revenue from Exchange Transactions Service Charges

Sales of Goods and Rendering of Services

Rental from Fixed Assets

Interest, Dividends and Rent on Land Earned Operational Revenue

Gains on Disposal of Property, Plant and Equipment

Total Revenue

Original Budget Adjustment x Actual $

Budget Adjustments Budget Final Budget Outcome Variance 80,000,000 - 80,000,000 80,000,000 58,570,538 (21,429,462) 631,000 - 631,000 631,000 124,738 (506,262) 547,000 - 547,000 547,000 842,075 295,075 48,090,000 - 48,090,000 48,090,000 60,083,375 11,993,375 109,756,000 7,963,000 117,719,000 117,719,000 103,996,172 (13,722,828) - - - - 298,855 298,855 258,000 170,000 428,000 428,000 337,813 (90,187) 693,000 - 693,000 693,000 886,753 193,753 422,000 728,000 1,150,000 1,150,000 233,709 (916,291) 25,000,000 - 25,000,000 25,000,000 - (25,000,000) 265,397,000 8,861,000 274,258,000 274,258,000 225,374,028 48,883,972

TSANTSABANE LOCAL MUNICIPALITY STATEMENT OF COMPARISON OF BUDGET AND ACTUAL AMOUNTS FOR THE YEAR ENDED 30 JUNE 2020

Expenditure

Employee Related Costs Remuneration of Councillors Depreciation and Amortisation Impairment Losses

Interest, Dividends and Rent on Land Bulk Purchases

Contracted Services

Inventory Consumed

Operating Leases

Operational Costs

Loss on Disposal of Property, Plant and Equipment

Total Expenditure

Surplus/(Deficit for the Year

92,351,000 (12,323,000) 80,028,000 80,028,000 73,261,235 (6,766,765) 5,756,000 - 5,756,000 5,756,000 5,477,125 (278,875) 17,877,000 - 17,877,000 17,877,000 32,324,301 14,447,301 30,000,000 - 30,000,000 30,000,000 71,086,465 41,086,465 7,365,000 (5,000,000) 2,365,000 2,365,000 17,814,335 15,449,335 64,338,000 (4,000,000) 60,338,000 60,338,000 58,474,459 (1,863,541) 10,150,000 - 10,150,000 10,150,000 19,860,765 9,710,765 2,630,000 - 2,630,000 2,630,000 1,993,432 (636,568) - 2,299,211 2,299,211 20,910,000 - 20,910,000 20,910,000 19,287,159 (1,622,841) - - 4,501,026 4,501,026

251,377,000 (21,323,000) 230,054,000 230,054,000 306,379,513 76,325,513 14,020,000 30,184,000 44,204,000 44,204,000 (81,005,485)| (125,209,485)

Financial Performance: Explanation of Variances between Approved Budget and Actual Reasons for Variances greater than 10% between Approved Budget and Actual Amount on the various items disclosed in the Statement of Financial Performance are |

30 June 2020

Description

CAPITAL EXPENDITURE PER FUNCTION Finance and Administration Water Management

Total Capital Expenditure

qama | Butt | Aumont | rassuagt | iit, | vane R R R R R R

500,000 (350,000) 150,000 150,000 3,696,774 3,546,774 14,299,000 - 14,299,000 14,299,000 9,488,995 (4,810,005) 14,799,000 (350,000) 14,449,000 14,449,000 13,185,769 (1,263,231)

Capital Expenditure per Function: Explanation of Variances between Approved Budget and Actual Reasons for Variances greater than 10% between Approved Budget and Actual Amount on the various items for Capital Expenditure per Function are explained below: |

30 June 2020

Description

CASH FLOW

Cash Flows from/(used in) Operating Activities Property Rates

Transfers and Subsidies

External Interest and Dividends Received Service charges

Other Receipts

VAT Receivable / Payable

Employee Related Costs

Remuneration of Councillors

External Interest and Dividends Paid Suppliers Paid

Cash Flows from/(used in) Investing Activities Purchase of Property, Plant and Equipment

Proceeds on Disposal of Property, Plant and Equipment Decrease / (Increase) in Non-current Investments Decrease / (Increase) in Long-term Receivables

Cash Flows from/(used in) Financing Activities Proceeds from Borrowings

Increase / (Decrease) in consumer deposits

Net increase/(decrease) in cash held

Original

Budget

Adjustment

Actual

Budget Adjustments Budget Final Budget Outcome Variance R

68,000,000 - 68,000,000 68,000,000 15,377,396 (52,622,604) 62,389,000 - 62,389,000 62,389,000 57,976,732 (4,412,268) 693,000 - 693,000 693,000 886,753 193,753 93,293,000 - 93,293,000 93,293,000 66,304,351 (26,988,649) 1,859,000 - 1,859,000 1,859,000 6,469,445 4,610,445 - - 2,149,167 2,149,167 (196,136,000) - (196,136,000)} (196,136,000) (71,901,644) 124,234,356 - - - (5,477,125) (5,477,125) (7,365,000) - (7,365,000) (7,365,000) (14,922,406) (7,557,406) - (37,061,680) (37,061,680) (14,299,000) - (14,299,000) (14,299,000) (12,024,136) 2,274,864 25,000,000 - 25,000,000 25,000,000 (4,312,894) (29,312,894) 2,000,000 - 2,000,000 2,000,000 - (2,000,000) (18,286,000) - (18,286,000) (18,286,000) - 18,286,000 - - - - (6,436,910) (6,436,910) 342,000 - 342,000 342,000 - (342,000) 17,490,000 17,490,000 17,490,000 (280,384) (17,770,384)

TSANTSABANE LOCAL MUNICIPALITY

STATEMENT OF COMPARISON OF BUDGET AND ACTUAL AMOUNTS FOR THE YEAR ENDED 30 JUNE 2020 Cash and Cash Equivalents at the year begin | (18,472,000) | (18,472,000)| (18,472,000) 12,430,393 30,902,393 Cash and Cash Equivalents at the year end (982,000) - (982,000) (982,000) 12,150,009 13,132,009

Cash Flow: Explanation of Variances between Approved Budget and Actual Reasons for Variances greater than 10% between Approved Budget and Actual Amount on the various items disclosed in the Cash Flow Statement are explained

TSANTSABANE LOCAL MUNICIPALITY

ACCOUNTING POLICIES TO THE ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2020

BASIS OF PRESENTATION

The Annual Financial Statements have been prepared on an Accrual Basis of accounting and are in accordance with the historical cost convention, except where indicated otherwise.

The Statement of Financial Performance has been prepared to classify expenses by nature, whilst revenue is classified in a manner appropriate to the municipality’s operations. The Cash Flow Statement has been prepared using the Direct Method.

The Annual Financial Statements have been prepared in accordance with Standards of Generally Recognised Accounting Practices (GRAP), as approved by the Minister of Finance, including any interpretations, guidelines and directives issued by the Accounting Standards Board and in accordance with the requirements of the Municipal Finance Management Act, 2003 (Act No. 56 of 2003).

1.1 Presentation Currency

The Annual Financial Statements are presented in South African Rand, rounded off to the nearest Rand which is the municipality's functional currency.

1.2 Changes in Accounting Policy and Comparability Accounting Policies have been consistently applied, except where otherwise indicated below.

For the years ended 30 June 2019 and 30 June 2020 the municipality has adopted the accounting framework as set out in paragraph 1 above. The details of any resulting changes in Accounting Policy and comparative restatements are set out below and in the relevant Notes to the Annual Financial Statements.

1.3 Critical Judgements, Estimations and Assumptions

In the application of the municipality's Accounting Policies, which are described below, management is required to make judgements, estimates and assumptions about the carrying amounts of assets and liabilities that are not readily apparent from other sources. The estimates and associated assumptions are based on historical experience and other factors that are considered to be reasonable under the circumstances, the results of which form the basis of making the judgements about carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates.

These estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision affects only that period or in the period of the revision and future periods if the revision affects both current and future periods.

The following are the critical judgements and estimations that management have made in the process of applying the municipality's Accounting Policies and that have the most significant effect on the amounts recognised in Annual Financial Statements:

1.3.1 Revenue Recognition

Accounting Policy 10.2 on Revenue from Exchange Transactions and Accounting Policy 10.3 on Revenue from Non-exchange Transactions describes the conditions under which revenue will be recorded by the management of the municipality.

In making their judgement, the management considered the detailed criteria for the recognition of revenue as set out in GRAP 9 (Revenue from Exchange Transactions) and GRAP 23 (Revenue from Non-exchange Transactions). As far as Revenue from Non-exchange Transactions is concerned (see Basis of Preparation above), and, in particular, whether the municipality, when goods are sold, had transferred to the buyer the significant risks and rewards of ownership of the goods and when services is rendered, whether the service has been rendered. Also of importance is the estimation process involved in initially measuring revenue at the fair value thereof. Management of the municipality is satisfied that recognition of the revenue in the current year is appropriate.

1.3.2 Impairment of Financial Assets

TSANTSABANE LOCAL MUNICIPALITY

ACCOUNTING POLICIES TO THE ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2020

Accounting Policy 7.4 on Impairment of Financial Assets describes the process followed to determine the value at which Financial Assets should be impaired. In making the estimation of the impairment, the management of the municipality considered the detailed criteria of impairment and used its judgement to select a variety of methods and make assumptions that are mainly based on market conditions existing at the end of the reporting period. The management of the municipality is satisfied that impairment of Financial Assets recorded during the year is appropriate.

e Impairment of Trade Receivables: The calculation in respect of the impairment of Debtors is based on an assessment of the extent to which Debtors have defaulted on payments already due, and an assessment of their ability to make payments based on their creditworthiness. This is performed per service-identifiable categories across all classes of debtors.

1.3.3 Fair Value Estimations

As described in Accounting Policies 5.2 the municipality subsequently measures its Investment Property in terms of the Fair Value Model.

The valuation of assets are based on management’s estimation. Management considered the impact of valuation techniques and market information in order to determine the current valuations, and more specific as follows:

e Investment Property is measured at fair value amounts based on valuation techniques and market information. The actual value of these items could differ from those estimated.

1.3.4 Useful lives of Property, Plant and Equipment, Intangible Assets and Investment Property

As described in Accounting Policies 2.3, and 4.2, the municipality depreciates its Property, Plant & Equipment and amortises its Intangible Assets, over the estimated useful lives of the assets, taking into account the residual values of the assets at the end of their useful lives, which is determined when the assets are available for use.

The estimation of residual values of assets is based on management’s judgement as to whether the assets will be sold or used to the end of their useful lives, and in what condition they will be at that time.

1.3.5 Impairment: Write-down of Property, Plant & Equipment, Intangible Assets, and Inventories

Accounting Policy 6 on Impairment of Assets, Accounting Policy 4.2 on Intangible Assets - Subsequent Measurement, Amortisation and Impairment describe the conditions under which non-financial assets are tested for potential impairment losses by the management of the municipality. Significant estimates and judgements are made relating to impairment testing of Property, Plant and Equipment and impairment testing of Intangible Assets.

In making the above-mentioned estimates and judgement, management considered the subsequent measurement criteria and indicators of potential impairment losses. In particular, the calculation of the recoverable service amount for PPE and Intangible Assets and the Net Realisable Value for Inventories involves significant judgment by management.

1.3.6 Water Inventory

The estimation of the Water Inventory in reservoirs is based on actual dip readings, which determines the depth of water in the reservoirs, which is then converted into volumes based on the total capacity of the reservoir. Furthermore, the length and width of all pipes are also taken into account in determining the volume of water on hand at year-end. Refer to Accounting Policy 9.2..

1.3.7 Defined Benefit Plan Liabilities

As described in Accounting Policy 12.2, Employee Benefits Post-employment Benefits, the municipality obtains actuarial valuations of its Defined Benefit Plan Liabilities. The defined benefit obligations of the municipality that were identified are Post- retirement Health Benefit Obligations and Long-service Awards. The estimated liabilities are recorded in accordance with the requirements of GRAP 25. Details of the liabilities and the key assumptions made by the actuaries in estimating the liabilities are provided in the relevant Notes to the Annual Financial Statements.

1.3.8 Provisions and Contingent Liabilities

TSANTSABANE LOCAL MUNICIPALITY

ACCOUNTING POLICIES TO THE ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2020 Management judgement is required when recognising and measuring Provisions and when measuring Contingent Liabilities. Provisions are discounted where the effect of discounting is material using actuarial valuations.

1.3.9 Budget Information

Deviations between budget and actual amounts are regarded as material differences when a 10% deviation exists. All material differences are explained in the relevant Notes to the Annual Financial Statements.

1.4 Going Concern Assumption The Annual Financial Statements have been prepared on a Going Concern Assumption.

The recent COVID-19 pandemic and its effect on the Municipality's current and expected performance has been considered by management in the Going Concern Assumption.

PROPERTY, PLANT AND EQUIPMENT

2.1 Initial Recognition Property, Plant and Equipment are initially recognised at cost.

Where an asset is acquired by the municipality for no or nominal consideration (i.e. a non-exchange transaction), the cost is deemed to be equal to the fair value of that asset on the date acquired.

Repairs and Maintenance are expenses incurred through servicing equipment or repairing of existing assets. These expenses are not recognised in the carrying value of the asset, but directly recognised in Surplus or Deficit and measured at cost against the attributing segments of the Municipal Standard Chart of Accounts (nSCOA).

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 year.

The cost of an item of property, plant and equipment is recognized as an asset if, and only if it is probable that future economic benefits or service potential associated with the item will flow to the Municipality, and if the cost or fair value of the item can be measured reliably.

2.2 Subsequent Measurement

Plant and Equipment Subsequently all Property Plant and Equipment are measured at cost, less accumulated depreciation and accumulated impairment losses.

2.3 Depreciation

Depreciation on assets other than land is calculated on cost, using the Straight-line Method, to allocate their cost or revalued amounts to their residual values over the estimated useful lives of the assets. 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 rates are based on the following estimated useful lives:

Asset Class Years Asset Class Years

Land and Buildings Infrastructure

Roads and Paving 5 - 80 Land Indefinite Roads & Paving 10 - 60 Buildings 15 - 50 Electricity 10-70

Water 15-60

TSANTSABANE LOCAL MUNICIPALITY

ACCOUNTING POLICIES TO THE ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2020 Other

Computer Equipment 3-7 Community

Furniture and Fittings 7-8 Graveyard site 15 - 50 Motor Vehicles 5-6 Recreational & Sport Facilities 15-50 Office Equipment 3-7 Landfill sitets 10 - 30 Plant and Machinery 3-7

2.4 Land

Land is stated at historical cost and is not depreciated as it is deemed to have an indefinite useful life.

2.5 Infrastructure Assets

Infrastructure Assets are any assets that are part of a network of similar assets. Infrastructure assets are shown at cost less accumulated depreciation and accumulated impairment. Infrastructure assets are treated similarly to all other assets of the municipality in terms of the asset management policy.

2.6 Finance Leases

Assets capitalised under finance leases are depreciated over their expected useful lives on the same basis as Property, Plant and Equipment controlled by the municipality or, where shorter, the term of the relevant lease if there is no reasonable certainty that the municipality will obtain ownership by the end of the lease term.

2.7 Derecognition

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.

HERITAGE ASSETS

Heritage Assets are not depreciated owing to uncertainty regarding to their estimated useful lives. The municipality assess at each reporting date if there is an indication of impairment.

3.1 Initial Recognition Heritage Assets are initially recognised at cost.

Where an asset is acquired by the municipality for no or nominal consideration (i.e. a non-exchange transaction), the cost is deemed to be equal to the fair value of that asset on the date acquired.

Repairs and Maintenance are expenses incurred through servicing equipment or repairing of existing assets. These expenses are not recognised in the carrying value of the asset, but directly recognised in Surplus or Deficit and measured at cost against the attributing segments of the Municipal Standard Chart of Accounts (nSCOA).

3.2 Subsequent Measurement

Subsequently all Heritage Assets are measured at cost, less accumulated impairment losses.

3.3 Derecognition

The gain or loss arising from the derecognition of an item of Heritage Assets is included in Surplus or Deficit when the item is derecognised.

INTANGIBLE ASSETS

4.1 Initial Recognition

TSANTSABANE LOCAL MUNICIPALITY

ACCOUNTING POLICIES TO THE ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2020 Identifiable non-monetary assets without physical substance are classified and recognised as Intangible Assets.

For internally generated Intangible Assets, all research expenditure is recognised as an expense as it is incurred and costs incurred on development projects are recognised as Intangible Assets in accordance with GRAP 31 (/ntangible Assets). Development costs previously recognised as an expense are not recognised as an asset in a subsequent period. Capitalised development costs are recorded as Intangible Assets and amortised from the point at which the asset is available for use. Development assets are tested for impairment annually.

Intangible Assets are initially recognised at cost.

Where an Intangible Asset is acquired by the municipality for no or nominal consideration (i.e. a non-exchange transaction), the cost is deemed to be equal to the fair value of that asset on the date acquired.

The cost of an Intangible Asset acquired in exchange for non-monetary assets or monetary assets, or a combination of monetary and non-monetary assets, is measured at the fair value of the asset given up, unless the fair value of the asset received is more clearly evident. If the acquired item could not be measured at its fair value, its cost is measured at the carrying amount of the asset given up. If the acquired item's fair value was not determinable, it's deemed cost is the carrying amount of the asset(s) given up.

Repairs and Maintenance are expenses incurred through servicing equipment or repairing of existing assets. These expenses are not recognised in the carrying value of the asset, but directly recognised in Surplus or Deficit and measured at cost against the attributing segments of the Municipal Standard Chart of Accounts (nSCOA).

4.2 Subsequent Measurement, Amortisation and Impairment

After initial recognition, Intangible Assets are carried at cost less any accumulated amortisation and any accumulated impairment losses.

Amortisation is charged on a Straight-line Method over the Intangible Assets’ useful lives. The residual value of Intangible Assets with finite useful lives is zero, unless an active market exists. Where Intangible Assets are deemed to have indefinite useful lives, such Intangible Assets are not amortised. However, such Intangible Assets are subject to an annual impairment test.

The amortisation rates are based on the following estimated useful lives:

Asset Class Years

Computer Software 3-7

4.3 Derecognition

The gain or loss arising from the derecognition of an item of Intangible Asset is included in Surplus or Deficit when the item is derecognised.

INVESTMENT PROPERTY

5.1 Initial Recognition

Investment property includes property (land or a building, or part of a building, or both land and buildings held under a finance lease) held to earn rentals and/or for capital appreciation, rather than held to meet service delivery objectives, the production or supply of goods or services, or the sale of an asset in the ordinary course of operations.

TSANTSABANE LOCAL MUNICIPALITY

ACCOUNTING POLICIES TO THE ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2020 The Municipality recognises Investment property as an asset when, and only when:

(a) it is probable that the future economic benefits or service potential that are associated with the investment property will flow to the entity; and

(b) the cost or fair value of the investment property can be measured reliably.

At initial recognition, the Municipality measures investment property at cost including transaction costs once it meets the definition of investment property. However, where an Investment Property was acquired through a non-exchange transaction (i. e. where it acquired the Investment Property for no or a nominal value), its cost is its fair value as at the date of acquisition.

Repairs and Maintenance are expenses incurred through servicing equipment or repairing of existing assets. These expenses are not recognised in the carrying value of the asset, but directly recognised in Surplus or Deficit and measured at cost against the attributing segments of the Municipal Standard Chart of Accounts (nSCOA).

Where the classification of an investment property is based on management's Judgement, the following criteria have been applied to distinguish investment properties from owner-occupied property or property held for resale:

* All properties held to earn market-related rentals or for capital appreciation or both and that are not used for administrative purposes and that will not be sold within the next 12 months are classified as Investment Properties.

e Land held for a currently undetermined future use;

* A building owned (or held by under a finance lease) and leased out under one or more operating leases;

e Leased properties that are held to provide a social (community) service or that are necessary for employees to perform their job functions, but which also generates rental revenue are not seen as investment properties. The rental revenue generated is incidental to the purposes for which the property is held;

e A building that is vacant but is held to be leased out under one or more operating leases;

e Property that is being constructed or developed for future use as investment property.

5.2 Subsequent Measurement

Fair Value Model:

Investment Property is measured using the Fair Value Model. Investment Property is carried at fair value, representing open market value determined by external valuers at the date of the last general valuation. Fair value is based on active market prices, adjusted for any difference in the nature, location or condition of the specific asset, if necessary. A gain or loss arising from a change in the fair value of Investment Property is included in Surplus or Deficit for the period in which it arises.

If the municipality determines that the fair value of an Investment Property under construction is not reliably measurable but expects the fair value to be reliably measurable when construction is completed, it measures that Investment Property at cost until the fair value can be reliably determined or construction has been completed.

5.3 Derecognition

The gain or loss arising from the derecognition of an item of Investment Property is included in Surplus or Deficit when the item is derecognised.

IMPAIRMENT OF ASSETS

The municipality classifies all assets held with the primary objective of generating a commercial return as Cash Generating Assets. All other assets are classified as Non-cash Generating Assets.

6.1 Impairment of Cash Generating Assets

The municipality assesses at each reporting date whether there is any indication that an asset may be impaired.

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 recoverable amount of the cash generating unit to which the asset belongs is determined.

TSANTSABANE LOCAL MUNICIPALITY

ACCOUNTING POLICIES TO THE ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2020

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

If the recoverable amount of an asset is less than its carrying amount, the carrying amount of the asset is reduced to its recoverable amount. That reduction is an impairment loss.

An impairment of assets measured per the revaluation method reduces the Revaluation Surplus for that asset. The decrease shall be debited directly to a Revaluation Surplus to the extent of any credit balance existing in the Revaluation Surplus in respect of that asset.

An impairment loss of assets carried at cost less any accumulated depreciation or amortisation is recognised immediately in Surplus or Deficit.

An impairment loss is recognised for cash generating units if the recoverable amount of the unit is less than the carrying amount of the unit. The impairment loss is allocated to reduce the carrying amount of the assets of the unit pro rata on the basis of the carrying amount of each asset in the unit.

The municipality assesses at each reporting date whether there is any indication that an impairment loss recognised in prior periods for assets may no longer exist or may have decreased. If any such indication exists, the recoverable amounts of those assets are estimated.

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 had