I am responsible for the preparation of these Annual Financial Statements, which are set out on pages 2 - 94, in terms of Section 126(1) of the Municipal Finance Management Act No. I certify that the salaries, allowances and benefits of Councillors as disclosed in note 29 of these Annual Financial Statements are within the upper limits of the framework envisaged in Section 219 of the Constitution of South Africa Act No.108 of 1996, save for disclosure in said note read with the Remuneration of Public Officer Bearers Act No.
Basis of preparation
- Critical Judgements, Estimations and Assumptions
- Revenue Recognition
- Financial Assets and Liabilities
- Impairment of Financial Assets
- Useful lives of Property, Plant and Equipment, Intangible Assets and Investment Property
- Defined Benefit Plan Liabilities
- Provisions and Contingent Liabilities
- Budget Information
- Presentation Currency
- Going Concern Assumption
- Standards, Amendments to Standards and Interpretations issued but not yet Effective
Accounting Policy 9.1 on Financial Assets Classification and Accounting Policy 9.2 on Financial Liabilities Classification describe the factors and criteria considered by the management of the municipality in the classification of Financial Assets and Liabilities. The management of the municipality is satisfied that impairment of Financial Assets recorded during the year is appropriate.
PROPERTY, PLANT AND EQUIPMENT 1 Initial Recognition
- Subsequent Measurement
- Depreciation
- Land
- Infrastructure Assets
- Incomplete Construction Work
- Leased Assets
- Derecognition
Subsequent expenditure relating to Property, Plant and Equipment is capitalised if it is probable that future economic benefits or potential service delivery associated with the subsequent expenditure will flow to the municipality and the cost or fair value of the subsequent expenditure can be reliably measured. 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.
HERITAGE ASSETS
Initial Recognition
Infrastructure Assets are treated similarly to all other assets of the municipality in terms of the Asset Management Policy. 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.
Subsequent Measurement
The cost of an item of Heritage Assets acquired in exchange for a non-monetary asset or monetary asset, 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. These expenses are not recognised in the carrying value of the asset, but directly recognised in the Statement of Financial Performance and measured at cost against the attributing segments of the Municipal Standard Chart of Accounts (MSCoA).
Derecognition
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.
INTANGIBLE ASSETS 1 Initial Recognition
Subsequent Measurement, Amortisation and Impairment
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.
Derecognition
After initial recognition, Intangible Assets are carried at cost less any accumulated amortisation and any accumulated impairment losses. In terms of GRAP 31, Intangible Assets are distinguished between internally generated Intangible Assets and other Intangible Assets.
INVESTMENT PROPERTY 1 Initial Recognition
Subsequent Measurement
Investment Property is measured using the Cost Model and is stated at cost less accumulated depreciation and accumulated impairment losses. The gain or loss arising on the disposal of an Investment Property is determined as the difference between the sales proceeds and thearrying value and is recognised in the Statement of Financial Performance.
Derecognition
Depreciation is calculated on cost, using the Straight-line Method over the useful life of the property, which is estimated at 10 - 30 years.
IMPAIRMENT OF ASSETS
Impairment of Cash Generating Assets
Impairment of Non-cash Generating Assets
If the recoverable service amount of an asset is less than its carrying amount, the carrying amount of the asset is reduced to its recoverable service amount. An impairment loss is recognised for non-cash generating units if the recoverable service amount of the unit is less than the carrying amount of the unit.
ESTIMATION OF USEFUL LIVES
The value in use for a non-cash generating asset is the present value of the asset's remaining service potential. 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.
FINANCIAL INSTRUMENTS
- Financial Assets - Classification
- Financial Liabilities - Classification
- Initial and Subsequent Measurement .1 Financial Assets
- Financial Liabilities
- Impairment of Financial Assets
- Financial Assets at Amortised Cost
- Financial Assets at Cost
- Derecognition of Financial Assets
- Derecognition of Financial Liabilities
Financial Assets at Amortised Cost are initially measured at fair value plus transaction costs that are directly attributable to the acquisition or issue of the Financial Asset. Financial Assets at Fair Value are initially measured at fair value, excluding directly attributable transaction costs.
INVENTORIES 1 Initial Recognition
Subsequent Measurement
- Consumable Stores, Raw Materials, Work-in-Progress and Finished Goods
- Other Inventories
The municipality derecognises Financial Liabilities when, and only when, the municipality's obligations are discharged, cancelled or they expire. The municipality recognises the difference between the carrying amount of the 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, in the Statement of Financial Performance.
REVENUE RECOGNITION 1 General
Revenue from Exchange Transactions .1 Service Charges
- Rentals Received
- Finance Income
- Tariff Charges
- Revenue from Agency Services
- Sale of Goods (including Houses)
Service Charges are levied in terms of approved tariffs. Service charges relating to refuse removal are recognised on a monthly basis in arrears by applying the approved tariff to all properties that have improvements. Tariffs are determined per category of property usage, and are levied based on the number of refuse collections on each property during the week. Revenue from the rental of facilities and equipment is recognised on a Straight-line Basis over the term of the lease agreement. Interest earned on investments is recognised in the Statement of Financial Performance on the Time-proportionate Basis that takes into account the effective yield on the investment. Interest earned on the following investments is not recognised in the Statement of Financial Performance:. Interest earned on unutilised Conditional Grants is allocated directly to the Creditor: Unutilised Conditional Grants, if the grant conditions indicate that interest is payable to the funder. Revenue arising from the application of the approved tariff of charges is recognised when the relevant service is rendered by applying the relevant authorised tariff. This includes the issuing of licences and permits. Revenue for agency services is recognised on a monthly basis once the revenue collected on behalf of agents has been quantified. The revenue recognised is in terms of the agency agreement. Revenue from the sale of goods is recognised when all the following conditions have been met:. a) The municipality has transferred to the buyer the significant risks and rewards of ownership of the goods;. b) The municipality retains neither continuing managerial involvement to the degree usually associated with ownership nor effective control over the goods sold;. c) The amount of revenue can be measured reliably;. d) It is probable that the economic benefits or service potential associated with the transaction will flow to the municipality; and (e) The costs incurred or to be incurred in respect of the transaction can be measured reliably.
Revenue from Non-exchange Transactions
- Rates and Taxes
- Fines
- Public Contributions
- Government Grants and Receipts
- Revenue from Recovery of Unauthorised, Irregular, Fruitless and Wasteful Expenditure
Conditional grants, donations and funding are recognised as revenue to the extent that the municipality has complied with any of the criteria, conditions or obligations embodied in the agreement. Where the agreement contains a stipulation to return the asset, other future economic benefits or service potential, in the event of non-compliance to these stipulations and would be enforced by the transferor, a liability is recognised to the extent that the criteria, conditions or obligations have not been met.
PROVISIONS
Provision for Environmental Rehabilitation
Revenue from the recovery of unauthorised, irregular, fruitless and wasteful expenditure is based on legislated procedures, including those set out in the Municipal Finance Management Act (Act No 56 of 2003) and is recognised when the recovery thereof from the responsible councillors or officials is virtually certain.
EMPLOYEE BENEFIT LIABILITIES 1 Short-term Employee Benefits
Post-employment Benefits
- Defined Contribution Plans
- Defined Benefit Plans
The municipality's contributions to the defined contribution funds are established in terms of the rules governing those plans. The present value of the defined benefit obligation is calculated using the Projected Unit Credit Method, incorporating actuarial assumptions and a discount rate based on the government bond rate.
LEASES 1 Classification
The Municipality as Lessee .1 Finance Leases
- Operating Leases
The Municipality as Lessor
Determining whether an Arrangement contains a Lease
BORROWING COSTS
GRANTS-IN-AID
VALUE ADDED TAX
UNAUTHORISED EXPENDITURE
IRREGULAR EXPENDITURE
FRUITLESS AND WASTEFUL EXPENDITURE
CHANGES IN ACCOUNTING POLICIES, ESTIMATES AND ERRORS
TREATMENT OF ADMINISTRATION AND OTHER OVERHEAD EXPENSES
CONTINGENT ASSETS AND CONTINGENT LIABILITIES
COMMITMENTS
RELATED PARTIES
Committee Members, Municipal Manager, Chief Financial Officer and all other managers reporting directly to the Municipal Manager or as designated by the Municipal Manager.
EVENTS AFTER THE REPORTING DATE
COMPARATIVE INFORMATION 1 Current Year Comparatives
- Prior Year Comparatives
- Budget Information
- Investment property
- Investment property (continued)
- Property, plant and equipment
- Property, plant and equipment (continued)
- Intangible assets
- Intangible assets (continued)
- Heritage assets
- Heritage assets (continued)
- Financial instruments
- Financial instruments (continued)
- Leases
- Inventories
- Inventories (continued)
- Impairment of cash-generating assets
- Share capital / contributed capital
- Employee benefits Defined contribution plans
- Employee benefits (continued) Defined benefit plans
- Provisions and contingencies Provisions are recognised when
- Provisions and contingencies (continued)
- Borrowing costs
Depreciation is the systematic allocation of the depreciable amount of an asset over its useful life. Value in use of a non-cash-generating asset is the present value of the asset’s remaining service potential.
Inventories
The addresses of its registered office and principal place of business are disclosed under "General Information" included in the Annual Financial Statements and in the introduction of the Annual Report. The principal activities of the municipality are disclosed in the Annual Report and are prescribed by the Municipal Finance Management Act (MFMA).
Receivables from exchange transactions Gross balances
- Ageing of receivables from exchange transactions
- Summary of receivables from exchange transactions by customer classification
- Ageing of impaired receivables from exchange transactions Current
- Derecognition of financial assets
Richmond Local Municipality (the municipality) is a local government institution in Richmond, Kwa-Zulu Natal Province, and is one of six local municipalities under the jurisdiction of the uMgungundlovu District Municipality. Provision for impairment of Receivables has been made for all consumer balances outstanding based on the payment ratio over 12 months per service type.
Receivables from non-exchange transactions Gross Balances
- Ageing of receivables from non-exchange transactions
- Summary of assessment rates debtors by customer classification
- Reconciliation of the provision for impairment
- Ageing of impaired receivables Current
Accordingly, the management believe that there is no further credit provision required in excess of the Provision for Impairment. No Provision for Impairment has been made in respect of government debt as these amounts are considered to be fully recoverable.
VAT receivable
The Provision for Impairment was calculated after grouping all the financial assets of similar nature and risk ratings and by calculating the historical payment ratios for the groupings and by assuming that the future payment ratios would be similar to the historical payment ratios. In determining the recoverability of a Rates Assessment Debtor and Receivables from Non-exchange Transactions, the municipality considers any change in the credit quality of the Rates Assessment Debtor from the date credit was initially granted up to the reporting date.
Cash and cash equivalents
Current investment deposits
The concentration of credit risk is limited due to the customer base being large and unrelated. The municipality does not have any overdrawn current account facilities with its banker and therefore does not incur interest on overdrawn current accounts.
Cash and cash equivalents
Property, plant and equipment
- Gross carrying amount of property, plant and equipment that is fully depreciated and still in use
- Carrying amount of property, plant and equipment retired from active use and not classified as a discontinued operation
- Assets pledged as security
- Impairment of property, plant and equipment
- Change in estimate - useful life of property, plant and equipment reviewed
- Work-in-progress
- Expenditure incurred to repair and maintain
There are no Property, Plant and Equipment that is fully depreciated at year-end and still in use by the municipality. Total change in estimate for useful life of property, plant and equipment Land and buildings carried at fair value.
Notes to the Annual Financial Statements
Heritage assets (continued)
- Impairment of Heritage Assets
- Heritage Assets measured after recognition using the Revaluation Model
- Work-in-Progress
- Delayed Projects
Intangible assets
Intangible assets (continued) Reconciliation of intangible assets - 2017
- Significant Intangible Assets
- Intangible Assets with Indefinite Useful Lives
- Impairment of Intangible Assets
- Work-in-Progress
- Delayed Projects
Investment property
Investment property (continued) Reconciliation of investment property - 2017
- Investment Property carried at Fair Value
- Impairment of Investment Property
- Work-in-Progress
- Delayed Projects
- Expenditure incurred to Repair and Maintain
Non-current Investments Unlisted
Non-current provisions
Payables from exchange transactions
Payables from non-exchange transactions
Unspent conditional grants and receipts Conditional grants from government
Operating lease liabilities
- Leasing Arangements The Municipality as Lessee
- Amounts payable under Operating Leases
Long-term liabilities
- Summary of Arrangements
- Obligations under Finance Lease Liabilities The Municipality as Lessee
Employee benefit liabilities
Employee benefit liabilities (continued)
- Long Service Awards Liability
The most recent actuarial valuations of plan assets and the present value of the defined benefit obligation were carried out at 30 June 2018 by Arch Actuarial Consulting, Fellow of the Actuarial Society of South Africa. The present value of the defined benefit obligation, and the related current service cost and past service cost, were measured using the Projected Unit Credit Method.
Rental of facilities and equipment
Interest earned Property Rates
Service charges
Operational revenue
Property rates
Licences and permits
Government grants and subsidies Operating grants
- Donated Assets
- National Equitable Share
- National: EPWP Grant
- National: FMG Grant
Government grants and subsidies (continued)
- National: MIG Funds
- National: Department Minerals and Energy
- Provincial: Department Cooperative Government and Trading Affairs (CoGTA)
- Provincial: Department Arts and Culture
- Provincial: Department Human Settlement
- Local Government: Umgungundlovu District Municipality
- Changes in levels of Government Grants
This grant was allocated for the funding of various housing projects to assist the indigent communities. This grant was allocated to the municipality as a contribution towards the clearing of vacant land and plots.
Fines
This grant was allocated to provide access to modern day technology and information resources; and relevant collections of library materials which meet the needs of the communities.
Employee related costs
Remuneration of Councillors
Depreciation and Amortisation
Impairment losses Impairments
Collection Costs
Contracted services Outsourced Services
Grants and Subsidies 36. Operational costs
Operational costs (continued)
Financing Facilities
Utilisation of long-term liabilities reconciliation
Unauthorised expenditure
Irregular expenditure
Commitments for expenditure 1 Capital commitments
- Lease commitments
- Other commitments
Additional disclosure in terms of Municipal Finance Management Act Contributions to organised local government - SALGA
Additional disclosure in terms of Municipal Finance Management Act (continued) PAYE, Skills Development Levy and UIF
Additional disclosure in terms of Municipal Finance Management Act (continued) Deviation from, and ratification of minor breaches of, the Procurement Processes
Additional disclosure in terms of Municipal Finance Management Act (continued)
RECLASSIFICATION OF FINANCIAL STATEMENTS
- Reclassification of Revenue
- Reclassification Debtors
Prior period errors
- Payables from exchange transactions and payables from non-exchange transactions
Prior period errors (continued)
- Expenditure disclosure
Financial instruments disclosure 1 Classification
Financial instruments disclosure (continued) Financial Assets at Amortised Cost
- Fair Value
Financial instruments disclosure (continued) Trade and Other Receivables/Payables
Financial instruments disclosure (continued)
Multi-employer retirement benefit information
Related parties
- Interest of Related Parties
- Services rendered to Related Parties
- Loans granted to Related Parties
- Compensation of Related Parties
Contingencies Contingent liabilities
- Court Proceedings (i) Claim for Remuneration
Contingencies (continued)
- Court Proceedings (i) Breach of Contract
In-kind donations and assistance
Private public partnership
Events after the reporting date
Going concern assessment
Going concern assessment (continued)
Risk management 1 Capital Risk Management
- Financial risk management objectives
- Significant risks
- Market Risk
- Foreign Currency Risk Management
- Interest Rate Risk Management
The municipality’s activities expose it primarily to the financial risks of changes in interest rates (see Note 50.7 below). This is mainly attributable to the municipality's exposure to interest rates on its variable rate investments.
