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Mogale City Local Municipality 
Annual Financial Statements 
for the year ended 30 June 2012 


Mogale City Local Municipality 

(Registration number GT 481) 

Trading as Mogale City Local Municipality 

Annual Financial Statements for the year ended 30 June 2012 

General Information 


Legal form of entity 

Nature of business and principal activities 

Legislation governing the municipality's financial 
operations 

Mayoral committee 

Executive Mayor 
Councillors 


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

Business address 

Postal address 

Bankers 

Auditors 


Local Municipality 
Muncipality 

Municipal Finance Management Act (Act No. 56 of 2003) 

Cllr. K.C. Seerane 
Speaker: Cllr. S.M. Thupane 
Chief Whip: Cllr. S. Dube 
MMC Finance: Cllr. F.O Bhayat 

MMC Fluman Settlement and Rural Development: Cllr. S. Letsie 

MMC Roads & Transport: Cllr. N.E. Mdlulwa 

MMC Corporate Services: Cllr. N.C Mangole 

MMC Infrastructure Development: Cllr. M. Khuzwayo 

MMC Local Economic Development: Cllr. B. Friedman 

MMC Health and Social Services: Cllr. E Mathe 

MMC Intergrated Environmental Management : Cllr. M.A Mathibe 

MMC Sports and Recreation: Cllr. K.A. Setswalo-Moja 

MMC Public Safety: Cllr. N. Kufa 

4 

Mr D.M Mashitisho 
Mr L.M.E Mahuma 
Civic Centre 

Cnr Commissioner & Market Street 

Krugersdorp 

1740 

Civic Centre 

Cnr Commissioner & Market Street 

Krugersdorp 

1740 

P.O Box 94 

Krugersdorp 

1740 

Standard Bank 
Auditor General 


1 





Mogale City Local Municipality 

(Registration number GT 481) 

Trading as Mogale City Local Municipality 

Annual Financial Statements for the year ended 30 June 2012 

Index 


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


Index Page 

Accounting Officer's Responsibilities and Approval 3 

Statement of Financial Position 4 

Statement of Financial Performance 5 

Statement of Changes in Net Assets 6 

Cash Flow Statement 7 

Accounting Policies 8 - 31 

Notes to the Annual Financial Statements 32 - 100 


Abbreviations 

GRAP 

IAS 

SETA 

GPR-HIV/AIDS 

BKB 

WRDM 

MFMA 

MIG 

SRAC 

DWAF 

GDSD 


Generally Recognised Accounting Practice 

International Accounting Standards 

Services Sector Education & Training Authority 

Gauteng Provincial Local Government and Flousing 

Bontle ke Botho 

West Rand District Municipality 

Municipal Finance Management Act 

Municipal Infrastructure Grant (Previously CMIP) 

Sports, Recreation, Arts & Culture 

Department of Water and Forestry 

Gauteng Department of Social Development 


2 





Mogale City Local Municipality 

(Registration number GT 481) 

Trading as Mogale City Local Municipality 

Annual Financial Statements for the year ended 30 June 2012 

Accounting Officer's Responsibilities and Approval 


The Accounting Officer is required by the Municipal Finance Management Act (Act 56 of 2003), to maintain adequate 
accounting records and is responsible for the content and integrity of the annual financial statements and related financial 
information included in this report. It is the responsibility of the accounting officer to ensure that the annual financial statements 
fairly present the state of affairs of the municipality as at the end of the financial year and the results of its operations and cash 
flows for the period then ended. The external auditors are engaged to express an independent opinion on the annual financial 
statements and were given unrestricted access to all financial records and related data. 

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

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

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

The accounting officer is of the opinion, based on the information and explanations given by management, that the system of 
internal control provides reasonable assurance that the financial records may be relied on for the preparation of the annual 
financial statements. Flowever, any system of internal financial control can provide only reasonable, and not absolute, 
assurance against material misstatement or deficit. 

The accounting officer has reviewed the municipality’s cash flow forecast for the year to 30 June 2012 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 annual financial statements are prepared on the basis that the municipality is a going concern and that the municipality 
has neither the intention nor the need to liquidate or curtail materially the scale of the municipality. 

Although the accounting officer is primarily responsible for the financial affairs of the municipality, they are supported by the 
municipality's external auditors and internal auditors. 

The annual financial statements set out on pages 4 to 100, which have been prepared on the going concern basis, were 
approved by the accounting officer on 31 August 2012: 


Mr. D.M. Mashitisho 
Municipal Manager 


3 






Mogale City Local Municipality 

(Registration number GT 481) 

Trading as Mogale City Local Municipality 

Annual Financial Statements for the year ended 30 June 2012 


Statement of Financial Position 


Figures in Rand 

Note(s) 

2012 

Restated 201 1 

ASSETS 




CURRENT ASSETS 




Inventories 

9 

12,042,854 

17,092,208 

Other receivables from exchange transactions 

10 

44,284,188 

26,043,224 

Consumer debtors 

11 

304,658,746 

293,846,200 

Cash and cash equivalents 

12 

43,775,288 

39,906,264 

Operating lease asset 

50 

398,477 

361,893 



405,159,553 

377,249,789 

NON-CURRENT ASSETS 




Investment property 

3 

568,269,299 

594,654,889 

Property, plant and equipment 

4 

5,009,345,243 

4,912,600,657 

Intangible assets 

5 

4,220,761 

6,226,217 

Other financial assets 

6 

38,243,570 

35,968,195 

Biological assets 

49 

3,395,876 

- 



5,623,474,749 

5,549,449,958 

Total Assets 


6,028,634,302 

5,926,699,747 

LIABILITIES 




CURRENT LIABILITIES 




Retirement benefit obligation 

8 

7,828,856 

7,701,821 

Bank overdraft 

12 

- 

570,602 

Finance lease obligation 

14 

9,215,743 

3,847,688 

Unspent conditional grants and receipts 

15 

13,874,101 

10,437,546 

Provisions 

16 

14,146,715 

11,629,994 

Trade and other payables from exchange transactions 

17 

341,903,188 

297,880,566 

Other financial liabilities 

18 

17,961,031 

11,158,838 

Sundry deposits 

19 

8,551,654 

7,593,896 

VAT payable 

20 

68,632,136 

63,845,298 

Consumer deposits 

21 

35,997,439 

33,294,313 

Operating lease liability 

50 

572,551 

- 



518,683,414 

447,960,562 

NON-CURRENT LIABILITIES 




Retirement benefit obligation 

8 

95,088,897 

85,241,263 

Finance lease obligation 

14 

12,020,871 

10,492,509 

Provisions 

16 

52,428,724 

46,793,432 

Other financial liabilities 

18 

177,131,998 

194,539,357 

Operating lease liability 

50 

148,197 

- 



336,818,687 

337,066,561 

TOTAL LIABILITIES 

855,502,101 

785,027,123 

NET ASSETS 

5,173,132,201 

5,141,672,624 

NET ASSETS 

Accumulated surplus 

5,173,132,201 

5,141,672,624 


4 















Mogale City Local Municipality 

(Registration number GT 481) 

Trading as Mogale City Local Municipality 

Annual Financial Statements for the year ended 30 June 2012 


Statement of Financial Performance 


Figures in Rand 

Note(s) 

2012 

2011 

REVENUE 




Property rates 

24 

247,752,947 

217,375,414 

Property rates - Penality imposed and collection charges 


11,724,620 

12,225,618 

Service charges 

25 

951,363,075 

790,204,861 

Government grants & subsidies 

26 

298,564,361 

262,680,470 

Rental of facilities and equipment 

27 

3,148,630 

7,738,915 

Interest received - external investment 

28 

4,716,966 

4,518,061 

Dividends received 

28 

12,688 

1 1 ,224 

Interest received - outstanding debtors 


10,202,152 

7,547,349 

Fines 


11,035,560 

13,159,396 

Licences and permits 


23,129 

30,891 

Income from agency services 


19,075,486 

15,926,124 

Other income 

29 

210,871,368 

86,791,384 

TOTAL REVENUE 


1,768,490,982 

1,418,209,707 

EXPENDITURE 




Employee related costs 

30 

(397,067,503) 

(373,270,708) 

Remuneration of councillors 

31 

(17,954,208) 

(16,313,074) 

Depreciation and amortisation 

32 

(230,373,527) 

(224,722,314) 

Impairment of assets 

33 

(6,556,586) 

(4,738,270) 

Finance costs 

34 

(45,285,417) 

(33,209,415) 

Contracted services 

35 

(147,169,476) 

(122,484,944) 

Grants and subsidies paid 

36 

(19,893,178) 

(6,484,449) 

Bulk purchases 

37 

(540,934,961) 

(440,397,457) 

Debt impairment 

38 

(82,208,112) 

(48,032,071) 

Collection costs 


(26,478,406) 

(16,021,767) 

Repairs and maintenance 


(62,552,199) 

(88,250,347) 

General Expenses 

39 

(160,557,863) 

(129,717,538) 


TOTAL EXPENDITURE 

[1 ,737,031 ,436)[1 ,503,642,354) 


SURPLUS/(DEFICIT) FOR THE YEAR 

31,459,546 (85,432,647) 


5 








Mogale City Local Municipality 

(Registration number GT 481) 

Trading as Mogale City Local Municipality 

Annual Financial Statements for the year ended 30 June 2012 


Statement of Changes in Net Assets 


Figures in Rand 

Accumulated Total net 

surplus assets 

Opening balance as previously reported 

Adjustments 

Prior year adjustments(note 44) 

5,167,968,344 5,167,968,344 

59,136,927 59,136,927 

Balance at 01 July 2010 as restated 

Changes in net assets 

Deficit for the year 

5,227,105,271 5,227,105,271 

(85,432,647) (85,432,647) 

Total changes 

(85,432,647) (85,432,647) 

Opening balance as previously reported 

Adjustments 

Prior year adjustments(note 44) 

5,367,498,163 5,367,498,163 

(225,825,508) (225,825,508) 

Balance at 01 July 2011 as restated 

Changes in net assets 

Surplus for the year 

5,141,672,655 5,141,672,655 

31,459,546 31,459,546 

Total changes 

31,459,546 31,459,546 

Balance at 30 June 2012 

5,173,132,201 5,173,132,201 


Note(s) 


6 













Mogale City Local Municipality 

(Registration number GT 481) 

Trading as Mogale City Local Municipality 

Annual Financial Statements for the year ended 30 June 2012 


Cash Flow Statement 


Figures in Rand 

Note(s) 

2012 

2011 

Cash flows from operating activities 




Receipts 




Property rates 


288,373,404 

227,484,003 

Sale of goods and services 


840,059,156 

650,783,947 

Grants 


302,000,914 

261,278,918 

Interest income 


4,716,966 

7,443,563 

Dividends received 


12,688 

1 1 ,224 

Other receipts 


270,603,983 

309,341,352 



1,705,767,111 

1,456,343,007 

Payments 




Employee costs 


(418,880,383) 

(393,094,654) 

Suppliers and other payments 


(1,051,306,229) 

(871,050,434) 

Finance costs 


(45,285,417) 

(33,209,415) 

(1 ,51 5,472, 029)(1 ,297,354,503) 

Net cash flows from operating activities 

40 

190,295,082 

158,988,504 

Cash flows from investing activities 




Purchase of property, plant and equipment 

4 

(183,772,519) 

(178,560,682) 

Proceeds from sale of property, plant and equipment 

4 

8,021,962 

2,035,406 

Movements of investment property 

3 

- 

(63,499,548) 

Proceeds from sale of investment property 

3 

1,817,884 

- 

Purchase of other intangible assets 

5 

- 

(5,983,511) 

Movements of financial assets 


(2,275,375) 

(4,928,003) 

Net cash flows from investing activities 


(176,208,048) 

(250,936,338) 

Cash flows from financing activities 




Movements of other financial liabilities 


(10,605,166) 

41,504,260 

Movements in sundry deposits 


957,758 

788,722 

Net cash flows from financing activities 


(9,647,408) 

42,292,982 

Net increase/(decrease) in cash and cash equivalents 


4,439,626 

(49,654,852) 

Cash and cash equivalents at the beginning of the year 


39,335,662 

88,990,514 

Cash and cash equivalents at the end of the year 

12 

43,775,288 

39,335,662 


7 
















Mogale City Local Municipality 

(Registration number GT 481) 

Trading as Mogale City Local Municipality 

Annual Financial Statements for the year ended 30 June 2012 

Accounting Policies 


1. Presentation of Annual Financial Statements 

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

These annual financial statements have been prepared on an accrual basis of accounting and are in accordance with 
historical cost convention unless specified otherwise. They are presented in South African Rand. 

A summary of the significant accounting policies, which have been consistently applied, are disclosed below. 

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

The accounting policies are consistent with those used to present the previous year's annual financial statements, unless 
explicitly stated. The details of any changes in accounting policies are explained in the relevant policy. 

1.1 Significant judgements and sources of estimated 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. When any significant judgements and sources of 
estimates uncertainty are applicable, they have been disclosed in the relevant notes and policies. 

1.2 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 stated at cost less accumulated depreciation and accumulated impairment. Heritage 
assets, which are culturally significant resources and shown at cost are not depreciated owing to the uncertainty regarding 
their useful lives. Similarly land is not depreciated as it is deemed to have an infinite life. 

The cost of an item of property, plant and equipment is the purchase price and other costs attributable to bringing 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. Cost also includes initial estimates of the cost of dismantling and 
removing the assets and restoring the site. 

Where an asset is acquired at no cost, or for a nominal cost, 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 asset, or a 
combination of monetary and non-monetary asset, the asset acquired is initially measured at fair value. If the acquired 
item's fair value was not determinable, it's deemed cost is the carrying amount of the asset 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. 


8 





Mogale City Local Municipality 

(Registration number GT 481) 

Trading as Mogale City Local Municipality 

Annual Financial Statements for the year ended 30 June 2012 

Accounting Policies 


1.2 Property, plant and equipment (continued) 

Recognition of costs in the carrying amount of an item of property, plant and equipment ceases when the item is in the 
location and condition necessary for it to be capable of operating in the manner intended by management. 

Major spare parts and stand by equipment which are expected to be used for more than one period are included in 
property, plant and equipment. In addition, spare parts and stand by equipment which can only be used in connection with 
an item of property, plant and equipment are accounted for as property, plant and equipment. 

Major inspection costs which are a condition of continuing use of an item of property, plant and equipment and which meet 
the 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. Revaluations are made with 
sufficient regularity such that the carrying amount does not differ materially from that which would be determined using fair 
value at the end of the reporting period. 

Any increase in an asset’s carrying amount, as a result of a revaluation, is credited directly to a revaluation surplus. The 
increase is recognised in surplus or deficit to the extent that it reverses a revaluation decrease of the same asset previously 
recognised in surplus or deficit. 

Any decrease in an asset’s carrying amount, as a result of a revaluation, is recognised in surplus or deficit in the current 
period. The decrease is debited in revaluation surplus to the extent of any credit balance existing in the revaluation surplus 
in respect of that asset. 

Subsequent expenditure is capitalised when the recognition and measurement criteria of an asset are met. The municipality 
maintains and aquires assets to provide a social service to the community. The useful lives and economic lives of these 
assets are equal and consequently no residual values are determined. Depreciation is calculated on cost, using the straight 
line method, over the estimated useful lives of the assets. 


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


Item 

Land 

• Landfill site 
Roads 

• Electricity mains 

• Roads 

• Water Networks 

• Gas 

• Sewage 

• Pedestrian Malls 

• Airports 

• Security Measures 

• Storm Water 

• Pipe Works 

• Substations 
Community assets 

• Buildings 

• Recreation facilities 

Other property, plant and equipment 

• Office equipment 

• Furniture & Fittings 

• Bins and Containers 

• Emergency Equipment 

• Motor Vehicles 

• Plant and Equipment 

• Others 

• Books 
Animals PPE 


Average useful life 

Indefinite 

20-30 years 
15-60 years 
15-20 years 
0-20 years 
15-20 years 
20 years 
20 years 
5 years 
20-60 years 
10-100 years 
45 years 

30 years 
20 years 

5-10 years 
7-10 years 
5-10 years 
5-15 years 
3-20 years 
2-15 years 
15-100 years 
5-10 years 
20-80 years 


9 





Mogale City Local Municipality 

(Registration number GT 481) 

Trading as Mogale City Local Municipality 

Annual Financial Statements for the year ended 30 June 2012 

Accounting Policies 


1.2 Property, plant and equipment (continued) 

Heritage 0 Years 

The residual value, and the useful life and depreciation method of each asset are reviewed at the end of each reporting 
date. If the expectations differ from previous estimates, the change is accounted for as a change in accounting estimate. 

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

The depreciation charge for each period is recognised in the statement of financial performance 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. 

1.3 Investment property 

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


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

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

Where investment property is acquired at no cost or for a nominal cost, 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. 

Fair value 

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

The fair value of investment property reflects market conditions at the reporting date(30 June 2012). 

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

If the fair value of investment property under construction is not determinable, it is measured at cost until the earlier of the 
date it becomes determinable or construction is complete. 

Compesation from third parties for investment property that was impaired, lost or given up is recognised in surplus or deficit 
when the compesation becomes receivable. 

Property interests held under operating leases are classified and accounted for as investment property in the following 
circumstances. 

When the classification is difficult, the criteria used to distingish investment property from owner-occupied property and 
from property held for sale in the ordinary course of business are as follows. 

Mogale City has adopted fair value measurements on its investment properties. 


10 





Mogale City Local Municipality 

(Registration number GT 481) 

Trading as Mogale City Local Municipality 

Annual Financial Statements for the year ended 30 June 2012 

Accounting Policies 


1.4 Intangible assets 

An intangible asset is an identifiable, non-monetary asset without physical substance. Intangible assets are identifiable 
resources controlled by the municipality from which the municipality expects to derive future economic benefits or service 
pontential. 

Intangible asset are identifiable when they can be separated from an economic entity, is capable of being separated or 
derived from the municipality and sold, exchanged, licensed or when they arise as a result of a contractual or other legal 
right, excluding those rights that arise from the statute. 

An Intangible asset is recognised in the statement of financial position only 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. 

Intangible assets are initially recognised at cost. 

An intangible asset acquired at no or nominal cost, its cost shall be its fair value as at the date of acquisition. 

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

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

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

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

• there is an ability to use or sell it. 

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

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

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

Intangible assets are 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. 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. 

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

Item Useful life 

Computer software 5 years 

Intangible assets are derecognised when the asset is disposed off or when the are no future economic benefits or service 
potential expected from the use of the asset. The gain or loss arising on the disposal or retirement of an intangible asset is 
determined as the difference between the sales proceeds and the carrying value and is recognised in the Statement of 
Financial Performance. 

The gain or loss is the difference between the net disposal proceeds, if any, and the carrying amount, the gain or losses is 
recognised in surplus or deficit when the asset is derecognised. 


11 





Mogale City Local Municipality 

(Registration number GT 481) 

Trading as Mogale City Local Municipality 

Annual Financial Statements for the year ended 30 June 2012 

Accounting Policies 


1.5 Financial instruments 
Classification 

The municipality classifies financial assets and financial liabilities into the following categories: 

• Held-to-maturity investment financial assets 

• Loans and receivables 

• Available-for-sale financial assets 

• Financial liabilities at amortised cost 

Classification depends on the purpose for which the financial instruments were obtained / incurred and takes place at initial 
recognition. Classification is re-assessed on an annual basis. 


Initial recognition 

Financial instruments are recognised initially when the municipality becomes a party to the contractual provisions of the 
instruments. 


12 





Mogale City Local Municipality 

(Registration number GT 481) 

Trading as Mogale City Local Municipality 

Annual Financial Statements for the year ended 30 June 2012 

Accounting Policies 


1.5 Financial instruments (continued) 

Subsequent measurement 

When a financial asset or financial liability is recognised initially, the economic entity measures it at its fair value plus, in the 
case of a financial asset or financial liability not at fair value through profit or loss, transaction costs that are directly 
attributable to the acquisition or issue of the financial asset or financial liability. 

The best evidence of fair value is quoted prices in an active market. If the market for a financial instrument is not active, the 
economic entity 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 business 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 economic 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, the economic entity 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. The economic entity assesses at the 
end of each reporting period whether there is any objective evidence that a financial asset or group of financial assets is 
impaired. If any such evidence exists, the economic entity applies the following to determine the amount of any impairment 
loss: 

Financial assets carried at amortised cost: If there is objective evidence that an impairment loss on loans and receivables 
or held-to maturity investments carried 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 (i.e. the effective 
interest rate computed at initial recognition). The amount of the loss is recognised in surplus or deficit. 

Financial assets carried at cost: If there is objective evidence that an impairment loss has been incurred on an unquoted 
equity instrument that is not carried at fair value because its fair value cannot be reliably measured, or on a derivative asset 
that is linked to and must be settled by delivery of such an unquoted equity instrument, 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. 

Available-for-sale financial assets: When a decline in the fair value of an available-for-sale financial asset has been 
recognised in accumulated surplus or deficit and there is objective evidence that the asset is impaired, the cumulative loss 
that had been recognised in accumulated surplus or deficit is reclassified from accumulated surplus or deficit to surplus or 
deficit as a reclassification adjustment even though the financial asset has not been derecognised. 

Trade and other receivables 

Trade receivables are measured at initial recognition at fair value, and are subsequently measured at amortised cost using 
the effective interest rate method. Appropriate allowances for estimated irrecoverable amounts are recognised in surplus or 
deficit when there is objective evidence that the asset is impaired. Significant financial difficulties of the debtor, probability 
that the debtor will enter bankruptcy or financial reorganisation, and default or delinquency in payments (more than 90 days 
overdue) are considered indicators that the trade receivable is impaired. The allowance recognised is measured as the 
difference between the asset’s carrying amount and the present value of estimated future cash flows discounted at the 
effective interest rate computed at initial recognition. 

The carrying amount of the asset is reduced through the use of an allowance account, and the amount of the deficit is 
recognised in surplus or deficit within operating expenses. When a trade receivable is uncollectible, it is written off against 
the allowance account for trade receivables. Subsequent recoveries of amounts previously written off are credited against 
operating expenses in surplus or deficit. 

Trade and other payables 


13 





Mogale City Local Municipality 

(Registration number GT 481) 

Trading as Mogale City Local Municipality 

Annual Financial Statements for the year ended 30 June 2012 

Accounting Policies 


1.5 Financial instruments (continued) 

Trade payables are initially measured at fair value, and are subsequently measured at amortised cost, using the effective 
interest rate method. 

a) Leave accrual 

Liabilities for annual leave are recognised as they accrue to employees. The liability is based on the total accrued leave 
days at year end 

b) Bonus accrual 

The amount is based on the bonus accruing to all the employees of the municipality 


14 





Mogale City Local Municipality 

(Registration number GT 481) 

Trading as Mogale City Local Municipality 

Annual Financial Statements for the year ended 30 June 2012 

Accounting Policies 


1.5 Financial instruments (continued) 

Cash and cash equivalents 

Cash and cash equivalents comprise cash on hand and demand deposits, and other short-term highly liquid investments 
that are readily convertible to a known amount of cash and are subject to an insignificant risk of changes in value. These 
are initially and subsequently recorded at fair value. 

Bank overdraft and borrowings 

Bank overdrafts and borrowings are initially measured at fair value, and are subsequently measured at amortised cost, 
using the effective interest rate method. Any difference between the proceeds (net of transaction costs) and the settlement 
or redemption of borrowings is recognised over the term of the borrowings in accordance with the municipality’s accounting 
policy for borrowing costs. 

Held to maturity 

These financial assets are initially measured at fair value plus direct transaction costs. 

At subsequent reporting dates these are measured at amortised cost using the effective interest rate method, less any 
impairment loss recognised to reflect irrecoverable amounts. An impairment loss is recognised in surplus or deficit when 
there is objective evidence that the asset is impaired, and is measured as the difference between the investment’s carrying 
amount and the present value of estimated future cash flows discounted at the effective interest rate computed at initial 
recognition. Impairment losses are reversed in subsequent periods when an increase in the investment’s recoverable 
amount can be related objectively to an event occurring after the impairment was recognised, subject to the restriction that 
the carrying amount of the investment at the date the impairment is reversed shall not exceed what the amortised cost 
would have been had the impairment not been recognised. 

Financial assets that the municipality has the positive intention and ability to hold to maturity are classified as held to 
maturity. 

Catergorisation 


15 





Mogale City Local Municipality 

(Registration number GT 481) 

Trading as Mogale City Local Municipality 

Annual Financial Statements for the year ended 30 June 2012 

Accounting Policies 


1.5 Financial instruments (continued) 

The economic entity has various types of financial instruments and these can be broadly catergorised as either financial 
assets or financial liabilities. 

A financial asset is any asset that is: 

- cash 

- contractual right to receive cash or to receive another financial asset from another entity 

- a contractual right to exchange financial instruments on potentially favourable terms 

- an equity instrument of another entity 

- a contract that may or will be settled in the entity's own equity instrument (subject to certain conditions) 

The economic entity has the following types of financial assets as reflected on the face of the statement of Financial 
Position or in the notes thereto 

- Investments 

- Long term receivables 

- Consumer debtors 

- Other receivables 

- Cash and cash equivalents 

- Unlisted shares 

In accordance with IAS 39.09 the financial assets of the economic entity are classified as follows into one of the four 
categories allowed by the standards 

The type of financial asset classification in terms of IAS 39.09 

- Investments held to maturity 

- Long term loans and receivables 

- Consumer debtors and receivables 

- Other loans and receivables 

- Bank balances and cash available for sale 

- Unlisted shares available for sale 


A financial liability is any liability that is: 

- a contractual obligation to deliver cash or to deliver another financial asset 

- a contractual obligation to exchange financial instruments on potentially unfavourable terms 

The economic entity has the following types of financial liabilities as reflected on the face of the Statement of Financial 
Position or in the notes thereto: 

- Long term liabilities 

- Trade and other payables 

- Consumer deposits 

- Unspent conditional grants and receipts 

There are two main categories of financial liabilities, classified based on how they are measured. An y other financial 
liabilities are classified as financial liabilities that are not measured at fair value through profit and loss. 

In accordance with IAS 39.09 the financial liabilities of the economic entity are classified only as financial liabilities that are 
not measured at fair value through profit or loss because none of the following instruments are held for trading. 

Type of financial liabity classification in terms of IAS 39.09 

- Long term liabilities are financial liabilities that are not measured at fair value through profit and loss. 

- Consumer deposits are financial liabilites that are not measured at fair value through profit and loss 

- Trade and other payables are financial liabilities that are not measured at fair value through profit and loss 

- Unspent conditional grants and receipts are financial liabilities that are not measured at fair value through profit and loss 


Derecognition 
Financial assets 


16 





Mogale City Local Municipality 

(Registration number GT 481) 

Trading as Mogale City Local Municipality 

Annual Financial Statements for the year ended 30 June 2012 

Accounting Policies 


1.5 Financial instruments (continued) 

A financial asset (or, where applicable a part of a financial asset or part of a group of similar financial assets) is 
derecognised where: 

• the rights to receive cash flows from the asset have expired; 

• the municipality retains the right to receive cash flows from the asset, but has assumed an obligation to pay them 
in full without material delay to a third party under a ‘pass-through’ arrangement; or 

• the municipality has transferred its rights to receive cash flows from the asset and either 

has transferred substantially all the risks and rewards of the asset, or 

has neither transferred nor retained substantially all the risks and rewards of the asset, but has transferred 
control of the asset. 

Where the municipality has transferred its rights to receive cash flows from an asset and has neither transferred nor 
retained substantially all the risks and rewards of the asset nor transferred control of the asset, the asset is recognised to 
the extent of the municipality’s continuing involvement in the asset. Continuing involvement that takes the form of a 
guarantee over the transferred asset is measured at the lower of the original carrying amount of the asset and the maximum 
amount of consideration that the municipality could be required to repay. Where continuing involvement takes the form of a 
written and/or purchased option (including a cash-settled option or similar provision) on the transferred asset, the extent of 
the municipality’s continuing involvement is the amount of the transferred asset that the municipality may repurchase, 
except that in the case of a written put option (including a cash-settled option or similar provision) on an asset measured at 
fair value, the extent of the municipality’s continuing involvement is limited to the lower of the fair value of the transferred 
asset and the option exercise price. 

Financial liabilities 

A financial liability is derecognised when the obligation under the liability is discharged, cancelled or expires. Where an 
existing financial liability is replaced by another from the same lender on substantially different terms, or the terms of an 
existing liability are substantially modified, such an exchange or modification is treated as a derecognition of the original 
liability and the recognition of a new liability, and the difference in the respective carrying amounts is recognised in surplus 
or deficit. 

Impairment of financial assets 

Consumer debtors, long term receivables and other debtors are stated at cost less a provision for bad debts. The provision is 
made on an individual basis or group, based on expected cashflows. At each balance sheet date an assessment is made of 
whether there is any objective evidence of impairment of financial assets. If the is evidence then the recoverable amount is 
estimated and an impairment loss is recognised in accordance with IAS 39 as an expense in the Statement of Financial 
Performance. Separate classes of loans and receivables were assessed for impairment using the following methodologies. 

Sundry Deposits. 

Sundry deposits are assessed for impairment to ensure that no objective evidence exist that these deposits are 
irrecoverable. 

Sundry Debtors. 

Sundry debtors are those suspense control accounts classified as financial instruments with debit balances as at year 
end. Sundry debtors are assessed individually for impairments to ensure that no objective evidence exists that these 
debtors are irrecoverable 

1.6 Leases 

Where substantially all the risks and rewards associated with ownership of an asset are transferred to the economic entity, 
the lease is classified as a finance lease. Operating leases are those leases that do not transfer substantially all the risks 
and rewards associated with ownership of an asset to the economic entity. 

Finance leases - lessor 

The municipality recognises finance lease receivables as assets on the Statement of Financial Position. Such assets are 
presented as a receivable at an amount equal to the net investment in the lease. 


17 





Mogale City Local Municipality 

(Registration number GT 481) 

Trading as Mogale City Local Municipality 

Annual Financial Statements for the year ended 30 June 2012 

Accounting Policies 


1.6 Leases (continued) 

Finance revenue is recognised based on a pattern reflecting a constant periodic rate of return on the municipality’s net 
investment in the finance lease. Lease payment relating to the period, excluding costs for services, are applied against the 
gross investment in the lease to reduce both the principal and the unearned finance revenue. 

Finance leases - lessee 

At the commencement of the lease term, the economic entity recognise finance leases as assets and liabilities in the 
statement of financial position at an amount equal to the fair value of the leased asset or, if lower, the present value of the 
minimum lease payments, each determined at the inception of the lease. The discount rate used in calculating the present 
value of the minimum lease payments is the interest rate implicit in the lease, if this is practicable to determine; if not, the 
economic entity’s incremental borrowing rate is used. Any initial direct costs of the economic entity are added to the amount 
recognised as an asset. Minimum lease payments are apportioned between the finance charge and the reduction of the 
outstanding liability. The finance charge is allocated to each period during the lease term so as to produce a constant 
periodic rate of interest on the remaining balance of the liability. 

Contingent rents are charged as expenses in the periods in which they are incurred. A finance lease gives rise to a 
depreciation expense for depreciable assets as well as finance expense for each accounting period. The depreciation policy 
for depreciable leased assets is consistent with that for depreciable assets that are owned, and the depreciation recognised 
is calculated in accordance with the relevant accounting policy that the specific depreciable leased asset relates to. If there 
is no reasonable certainty that the economic entity will obtain ownership by the end of the lease term, the asset is fully 
depreciated over the shorter of the lease term and its useful life. 


Operating leases - lessor 


The economic entity present assets subject to operating leases in the Statement of Financial Position according to the 
nature of the asset. Lease revenue from operating leases is recognised as revenue on a straight-line basis over the lease 
term, unless another systematic basis is more representative of the time pattern in which benefit derived from the leased 
asset is diminished. Costs, including depreciation, incurred in earning the lease revenue are recognised as an expense. 
Lease revenue is recognised on a straight-line basis over the lease term even if the receipts are not on such a basis, unless 
another systematic basis is more representative of the time pattern in which use benefit derived from the leased asset is 
diminished. Initial direct costs incurred by the economic entity in negotiating and arranging an operating lease is 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 depreciation policy for depreciable leased assets is consistent with the economic entity’s normal depreciation 
policy for similar assets. 


Operating leases - lessee 

Lease payments under an operating lease are recognised as an expense in the Statement of Financial Performance on a 
straight-line basis over the lease term unless another systematic basis is more representative of the time pattern of the 
benefit to the economic entity. 

Finance leases - lessee Finance leases are recognised as assets and liabilities in the statement of financial position at 
amounts equal to the fair value of the leased property or, if lower, the present value of the minimum lease payments. The 
corresponding liability to the lessor is included in the statement of financial position as a finance lease obligation. The 
discount rate used in calculating the present value of the minimum lease payments is the . Minimum lease payments are 
apportioned between the finance charge and reduction of the outstanding liability. The finance charge is allocated to each 
period during the lease term so as to produce a constant periodic rate of on the remaining balance of the liability. Any 
contingent rents are expensed in the period in which they are incurred. 


1.7 Inventories 


18 





Mogale City Local Municipality 

(Registration number GT 481) 

Trading as Mogale City Local Municipality 

Annual Financial Statements for the year ended 30 June 2012 

Accounting Policies 


1.7 Inventories (continued) 

Inventories comprise current assets held for sale, consumption or distribution during the ordinary course of business. 
Inventories are initially recognised at cost. Cost generally refers to the purchase price, plus taxes, transport costs and any 
other costs in bringing the inventories to their current location and condition. 

Where inventory is manufactured, constructed or produced, the cost includes the cost of labour, materials and overheads 
used during the manufacturing process. Where inventory is acquired by the economic entity for no or nominal consideration 
(i.e. a non-exchange transaction), the cost is deemed to be equal to the fair value of the item on the date acquired. 
Inventories, consisting of consumable stores, raw materials, work-in-progress and finished goods, are valued at the lower of 
cost and net realisable value unless they are to be distributed at no or nominal charge, in which case they are measured at 
the lower of cost and current replacement cost. 

Redundant and slow-moving inventories are identified and written down in this way. Inventories identified for write 
down/write off, but for which a council resolution, to authorise the write down/write off, has not yet been obtained, is 
provided for as a provision for obsolete stock. Differences arising on the valuation of inventory are recognised in the 
Statement of Financial Performance in the year in which they arose. The amount of any reversal of any write-down of 
inventories arising from an increase in net realisable value or current replacement cost is recognised as a reduction in the 
amount of inventories recognised as an expense in the period in which the reversal occurs. The carrying amount of 
inventories is recognised as an expense in the period that the inventory was sold, distributed, written off or consumed, 
unless that cost qualifies for capitalisation to the cost of another asset. The weighted average method is the basis of 
allocating costs to inventories. Unsold properties are valued at cost. Direct costs are accumulated for each separately 
identifiable development. 


1.8 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 

Defined contributions plans are post employment benefits which the municipality pays fixed contributions into medical aid 
scheme for pensioners who previuosly worked for Mogale City and their spouses 

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

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

Defined benefit plans 

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

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

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


19 





Mogale City Local Municipality 

(Registration number GT 481) 

Trading as Mogale City Local Municipality 

Annual Financial Statements for the year ended 30 June 2012 

Accounting Policies 


1.8 Employee benefits (continued) 

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 entity 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 entity 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 entity also provides a gratuity 
and housing subsidy on retirement to certain employees. An annual charge to income is made to cover both these 
liabilities. 


20 





Mogale City Local Municipality 

(Registration number GT 481) 

Trading as Mogale City Local Municipality 

Annual Financial Statements for the year ended 30 June 2012 

Accounting Policies 


1.9 Provisions and contingent liabilities and assets 

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. 

Provisions are reviewed at each reporting date and adjusted to reflect the current best estimate and those which can be 
settled within twelve months are treated as current liabilities. All other provisions are treated as non current liabilities. 

A provision is used only for expenditures for which the provision was originally recognised 

All contigencies are disclosed in the financial statements as note describing the nature timing and extent of the event. 

a) Landfill rehabilitation provision 

The landfill rehabilitation provision is created for the rehabilitation of the current operational landfill site at an estimated time 
of closure. The value of the provisions based on the expected future cost to rehabilitate the various sites discounted back to 
the balance date at the cost to capital which is 10% 

The municipality has an obligation to rehabilitate the landfill site, the costs include the initial estimate of the cost to 
rehabilitate the land and restoring the land and restoring the site, the obligation of the municipality incurs as a result of 
having used the property during the particular period for landfill purposes. 

The municipality estimates that the useful life of landfill sites and assumptions thereto which influence the future cost to be 
provided for. 

The asset is measured using the cost model: 

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

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

(c) if the adjustment results in an addition to the cost of an asset, the economic entity considers whether this is an 
indication that the new carrying amount of the asset may not be fully recoverable. If it is such an indication, the 
asset is tested for impairment by estimating its recoverable amount, and any impairment loss is recognised in 
surplus or deficit 

b) Long service award 

The municipality offers various types of long service awards to its employees. The present value of the long service award 
obligation depends on the actuarial assumptions. The assumptions used to determine the obligation include the discount 
rate, inflation, the average retirement age and the acturial assumptions. The increase or decrease on the obligation is 
recognised in the Statement of Finanacial Perfomance. The obligation is recognised on the statement of financial position. 

c) Gratuity payment provision 

The provision is for the unpaid periods and is based on the pro rata accrual to retired employees based on the council 
resolution 

d) Workmans compensation 

The provision is for the unpaid periods, estimated in the latest return submitted to the compensation commissioner. 

1.10 Revenue from exchange transactions 


21 





Mogale City Local Municipality 

(Registration number GT 481) 

Trading as Mogale City Local Municipality 

Annual Financial Statements for the year ended 30 June 2012 

Accounting Policies 


1.10 Revenue from exchange transactions (continued) 

Revenue from exchange transactions refers to revenue that accrued to the economic entity directly in return for services 
rendered /goods sold, the value of which approximates the consideration received or receivable. Revenue is the gross 
inflows of economic benefits or service potential during the reporting period when those inflows result in increases 
in net assets, other than increases relating to contributions from owners. Revenue is measured at the fair value of the 
consideration received or receivable. When the inflow of cash or cash equivalents is deferred and the fair value of the 
consideration is less than the nominal amount of cash received or receivable, the arrangement effectively constitutes a 
financing transaction. The fair value of the consideration is determined by discounting all future receipts using an imputed 
rate of interest. 

The imputed rate of interest is the more clearly determinable of either: 

• the prevailing rate for a similar instrument of an issuer with a similar credit rating; or 

• a rate of interest that discounts the nominal amount of the instrument to the current cash sales price of the goods 
or services. 

The difference between the fair value and the nominal amount of the consideration is recognised as interest revenue. 
Service charges relating to electricity and water are based on consumption. Meters are read on a periodic basis and 
revenue is recognised when invoiced. Provisional estimates of consumption are made monthly when meter readings have 
not been performed and are based on the consumption history. The provisional estimates of consumption are recognised 
as revenue when invoiced. Adjustments to provisional estimates of consumption are made in the invoicing period when 
meters have been read. These adjustments are recognised as revenue in the invoicing period. There are areas within the 
economic entity were an un-metered water tariff is applied based on estimated consumption as per promulgated tariffs. 
Revenue for these is recognised when invoiced 

Revenue from the sale of electricity prepaid meter cards is recognised at the point of sale. Service charges relating to 
refuse removal are recognised on a monthly basis in arrears by applying the approved tariff to each property. Tariffs are 
determined per category of property size, and are levied monthly. 

Service charges from sewerage and sanitation are based on the number of sewerage connections on each developed 
property using the tariffs approved from Council and are levied monthly. 

Interest revenue is recognised on a time proportion basis. Revenue from the rental of facilities and equipment is recognised 
on a straight-line basis over the term of the lease agreement. Revenue arising from the application of the approved tariff of 
charges is recognised when the relevant service is rendered by applying the relevant gazetted tariff. This includes the 
issuing of licences and permits. 

Income for agency services is recognised on a monthly basis once the income collected on behalf of agents has been 
quantified. The income recognised is in terms of the agency agreement. 

Dividends are recognised when the economic entity’s right to receive payment is established. Revenue from the sale of 
goods is recognised when the following conditions have been satisfied: 

- the economic entity has transferred to the buyer the significant risks and rewards of ownership. 

- the economic entity 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 
economic entity. 

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


22 





Mogale City Local Municipality 

(Registration number GT 481) 

Trading as Mogale City Local Municipality 

Annual Financial Statements for the year ended 30 June 2012 

Accounting Policies 


1.11 Revenue from non-exchange transactions 

Revenue from non-exchange transactions refers to transactions where the economic entity received revenue from another 
entity without directly giving approximately equal value in exchange. Revenue from non-exchange transactions is generally 
recognised to the extent that the related receipt or receivable qualifies for recognition as an asset and there is no liability to 
repay the amount. 

Revenue from property rates is recognised when the legal entitlement to this revenue arises. Collection charges are 
recognised when such amounts are legally enforceable. Penalty interest on unpaid rates is recognised on a time proportion 
basis. A rating system charging one tariff is employed. Rebates and remissions are granted to certain categories of 
ratepayers and are recognised net of revenue. 

Fines constitute both spot fines and summonses. Revenue from spot fines and summonses is recognised when payment is 
received, together with an estimate of fines that will be received based on past experience of amounts collected. Revenue 
from public contributions and donations is recognized when all conditions associated with the contribution have been met or 
where the contribution is to finance property, plant and equipment, when such items of property, plant and equipment 
qualifies for recognition and first becomes available for use by the economic entity. 

Where public contributions have been received but the economic entity has not met the related conditions, a deferred 
income (liability) is recognized. Contributed property, plant and equipment is recognised when such items of property, plant 
and equipment qualifies for recognition and become available for use by the economic entity. 

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. 

1.12 Borrowing costs 

Borrowing costs that are directly attributable to the acquisition, construction or production of a qualifying asset are 
capitalised as part of the cost of that asset until such time as the asset is ready for its intended use. The amount of 
borrowing costs eligible for capitalisation is determined as follows: 

• actual borrowing costs on funds specifically borrowed for the purpose of obtaining a qualifying asset less any 
investment income on the temporary investment of those borrowings. 

• weighted average of the borrowing costs applicable to the municipality on funds generally borrowed for the 
purpose of obtaining a qualifying asset. The borrowing costs capitalised do not exceed the total borrowing costs 
incurred. 

The capitalisation of borrowing costs commences when all the following conditions have been met: 

• expenditures for the asset have been incurred; 

• borrowing costs have been incurred; and 

• activities that are necessary to prepare the asset for its intended use or sale are undertaken. 

When the carrying amount or the expected ultimate cost of the qualifying asset exceeds its recoverable amount or 
recoverable service amount or net realisable value, the carrying amount is written down or written off in accordance with the 
accounting policy on impairment of assets as per accounting policy number 1.13 and 1.14. In certain circumstances, the 
amount of the write-down or write-off is written back in accordance with the same accounting policy. 

Capitalisation is suspended during extended periods in which active development is interrupted. 

Extended periods is periods that exceeds 3 months. 

Capitalisation ceases when substantially all the activities necessary to prepare the qualifying asset for its intended use or 
sale are complete. 

When the municipality completes the construction of a qualifying asset in parts and each part is capable of being used 
while construction continues on other parts, the entity ceases capitalising borrowing costs when it completes substantially 
all the activities necessary to prepare that part for its intended use or sale. 

All other borrowing costs are recognised as an expense in the period in which they are incurred. 


23 





Mogale City Local Municipality 

(Registration number GT 481) 

Trading as Mogale City Local Municipality 

Annual Financial Statements for the year ended 30 June 2012 

Accounting Policies 


1.13 Impairment of cash-generating assets 

Cash-generating assets are those assets held by the municipality with the primary objective of generating a commercial 
return. When an asset is deployed in a manner consistent with that adopted by a profit-orientated entity, it generates a 
commercial return. 

Impairment is a loss in the future economic benefits or service potential of an asset, over and above the systematic 
recognition of the loss of the asset’s future economic benefits or service potential through depreciation (amortisation). 

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

A cash-generating unit is the smallest identifiable group of assets held with the primary 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 of its fair value less costs to sell and its value in 
use. 

Useful life is either: 

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

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

Identification 

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

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

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

Value in use 

Value in use of a cash-generating asset is the present value of the estimated future cash flows expected to be derived from 
the continuing use of an asset and from its disposal at the end of its useful life. 

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

Basis for estimates of future cash flows 

In measuring value in use the municipality: 

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


24 





Mogale City Local Municipality 

(Registration number GT 481) 

Trading as Mogale City Local Municipality 

Annual Financial Statements for the year ended 30 June 2012 

Accounting Policies 


1.13 Impairment of cash-generating assets (continued) 

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

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

Composition of estimates of future cash flows 

Estimates of future cash flows include: 

• projections of cash inflows from the continuing use of the asset; 

• projections of cash outflows that are necessarily incurred to generate the cash inflows from continuing use of the 
asset (including cash outflows to prepare the asset for use) and can be directly attributed, or allocated on a 
reasonable and consistent basis, to the asset; and 

• net cash flows, if any, to be received (or paid) for the disposal of the asset at the end of its useful life. 

Estimates of future cash flows exclude: 

• cash inflows or outflows from financing activities; and 

• income tax receipts or payments. 

The estimate of net cash flows to be received (or paid) for the disposal of an asset at the end of its useful life is the amount 
that the municipality expects to obtain from the disposal of the asset in an arm's length transaction between knowledgeable, 
willing parties, after deducting the estimated costs of disposal. 

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. 

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 


25 





Mogale City Local Municipality 

(Registration number GT 481) 

Trading as Mogale City Local Municipality 

Annual Financial Statements for the year ended 30 June 2012 

Accounting Policies 


1.13 Impairment of cash-generating assets (continued) 

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

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

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

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

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

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

• its value in use (if determinable); and 

• zero. 

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

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

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. 


26 





Mogale City Local Municipality 

(Registration number GT 481) 

Trading as Mogale City Local Municipality 

Annual Financial Statements for the year ended 30 June 2012 

Accounting Policies 


1.13 Impairment of cash-generating assets (continued) 

Redesignation 

The redesignation of assets from a cash-generating asset to a non-cash-generating asset or from a non-cash-generating 
asset to a cash-generating asset only occur when there is clear evidence that such a redesignation is appropriate. 

1.14 Impairment of non-cash-generating assets 

Cash-generating assets are those assets held by the municipality with the primary objective of generating a commercial 
return. When an asset is deployed in a manner consistent with that adopted by a profit-orientated entity, it generates a 
commercial return. 

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

Impairment is a loss in the future economic benefits or service potential of an asset, over and above the systematic 
recognition of the loss of the asset’s future economic benefits or service potential through depreciation (amortisation). 

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

A cash-generating unit is the smallest identifiable group of assets held with the primary 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. 
Useful life is either: 

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

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

Criteria developed by the municipality to distinguish non-cash-generating assets from cash-generating assets are as follow: 

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 tests 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 an asset is the present value of the asset’s remaining service potential. 

The present value of the remaining service potential of an asset is determined using the following approach: 

Depreciated replacement cost approach 


27 





Mogale City Local Municipality 

(Registration number GT 481) 

Trading as Mogale City Local Municipality 

Annual Financial Statements for the year ended 30 June 2012 

Accounting Policies 


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

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 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. 


28 





Mogale City Local Municipality 

(Registration number GT 481) 

Trading as Mogale City Local Municipality 

Annual Financial Statements for the year ended 30 June 2012 

Accounting Policies 


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

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. 

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. 

Redesignation 

The redesignation of assets from a cash-generating asset to a non-cash-generating asset or from a non-cash-generating 
asset to a cash-generating asset only occur when there is clear evidence that such a redesignation is appropriate. 

1.15 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 Position 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. 


29 





Mogale City Local Municipality 

(Registration number GT 481) 

Trading as Mogale City Local Municipality 

Annual Financial Statements for the year ended 30 June 2012 

Accounting Policies 


1.16 Irregular expenditure 

Irregular expenditure is expenditure that is contrary to the Municipal Finance Management Act (Act No. 56 of 2003), the 
Municipal Systems Act (Act No. 32 of 2000), and the Public Office Bearers Act (Act No. 20 of 1998) or is in contravention of 
the economic entity’s Supply 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. 

1.17 Use of estimates 

The preparation of annual financial statements in conformity with Standards of GRAP requires the use of certain critical 
accounting estimates. It also requires management to exercise its judgement in the process of applying the municipality’s 
accounting policies. The areas involving a higher degree of judgement or complexity, or areas where assumptions and 
estimates are significant to the annual financial statements are disclosed in the relevant sections of the annual financial 
statements. Although these estimates are based on management’s best knowledge of current events and actions they may 
undertake in the future, actual results ultimately may differ from those estimates. 

1.18 Biological assets 

Biological assets are plants and animals. They are recorded at cost less accumulated depreciation over their life 
expectancy. Biological assets which do not form part of PPE are initially recorded at cost and subsequently fair valued. 

An entity shall recognise a biological assets 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. 

Biological assets are measured at their fair value less point-of-sale costs. 

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

A gain or loss arising on initial recognition of biological assets or agricultural produce at fair value less estimated point-of- 
sale costs and from a change in fair value less estimated point-of-sale costs of a biological assets 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. 


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

Currently the Biological assets of the municipality are not depreciated. 

1.19 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. 


30 





Mogale City Local Municipality 

(Registration number GT 481) 

Trading as Mogale City Local Municipality 

Annual Financial Statements for the year ended 30 June 2012 

Accounting Policies 


1.20 Conditional grants and receipts 

Revenue received from conditional grants, donations and funding are recognised as revenue to the extent that the 
municipality has complied with any of the criteria, conditions or obligations embodied in the agreement. 

To the extent that the criteria, conditions or obligations have not been met a liability is recognised as deferred income. 


1.21 Corresponding figures 


When the presentation or classification of items in the annual financial statements is amended, prior period comparative 
amounts are reclassified. The nature and reason for the reclassification is disclosed. 

Where accounting errors have been identified in the current year, the correction is made retrospectively as far as is 
practicable, and the prior year comparatives are restated accordingly. Where there has been a change in accounting policy 
in the current year, the adjustment is made retrospectively as far as is practicable, and 
the prior year comparatives are restated accordingly. 

1.22 Budget information 


Budget information has been provided as per note 55 and Capital commitments to these financial statements 

1.23 Going concern 

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


31 





Mogale City Local Municipality 

(Registration number GT 481) 

Trading as Mogale City Local Municipality 

Annual Financial Statements for the year ended 30 June 2012 


Notes to the Annual Financial Statements 

Figures in Rand 


2012 


2011 





Mogale City Local Municipality 

(Registration number GT 481) 

Trading as Mogale City Local Municipality 

Annual Financial Statements for the year ended 30 June 2012 


Notes to the Annual Financial Statements 


2. New standards and interpretations 
2.1 New standards and interpretations 

Standards and interpretations effective and adopted in the current year: 

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

IGRAP 2: Changes in Existing Decommissioning, Restoration and Similar Liabilities 

The interpretation applies to changes in the measurement of any existing decommissioning, restoration or similar liability 
that is both: 

• recognised as part of the cost of an item of property, plant and equipment in accordance with the Standard of GRAP on 
Property, Plant and Equipment (as revised in 2010); and 

• recognised as a liability in accordance with the Standard of GRAP on Provisions, Contingent Liabilities and Contingent 
Assets (as revised in 2010) . 

The interpretation addresses how the effect of the following events that change the measurement of an existing 
decommissioning, restoration or similar liability should be accounted for: 

• a change in the estimated outflow of resources embodying economic benefits (e.g. cash flows) or service potential 
required to settle the obligation; 

• a change in the current market-based discount rate as defined in paragraph .52 of the Standard of GRAP on Provisions, 

Contingent Liabilities and Contingent Assets (as revised in 2010) (this includes changes in the time value of money and the 
risks specific to the liability); and 

• an increase that reflects the passage of time (also referred to as the unwinding of the discount). 

The effective date of the interpretation is for years beginning on or after 01 April 201 1 . 

The municipality has adopted the interpretation for the first time in the 2012 financial statements. 

The impact of the interpretation is not material. 


IGRAP 3: Determining Whether an Arrangement Contains a Lease 

This Interpretation of the Standards of GRAP does not apply to arrangements that are, or contain, leases excluded from the 
scope of the Standard of GRAP on Leases (as revised in 2010). 

The issues addressed in this Interpretation of the Standards of GRAP are: 

• how to determine whether an arrangement is, or contains, a lease as defined in the Standard of GRAP on Leases (as 
revised in 2010); 

• when the assessment or a reassessment of whether an arrangement is, or contains, a lease should be made; and 

• if an arrangement is, or contains, a lease, how the payments for the lease should be separated from payments for any 
other elements in the arrangement. 

The effective date of the interpretation is for years beginning on or after 01 April 201 1 . 

The municipality has adopted the interpretation for the first time in the 2012 financial statements. 

The impact of the interpretation is not material. 


IGRAP 4: Rights to Interests Arising from Decommissioning, Restoration and Environmental Rehabilitation Funds 

This Interpretation of the Standards of GRAP applies to accounting in the financial statements of a contributor for interests 
arising from decommissioning funds that have both of the following features: 

The issues addressed in this Interpretation of the Standards of GRAP are: 

• the assets are administered separately (either by being held in a separate legal entity or as segregated assets within 
another entity); and 

• a contributor’s right to access the assets is restricted. 

A residual interest in a fund that extends beyond a right to reimbursement, such as a right to distributions once all the 


33 






Mogale City Local Municipality 

(Registration number GT 481) 

Trading as Mogale City Local Municipality 

Annual Financial Statements for the year ended 30 June 2012 


Notes to the Annual Financial Statements 


2. New standards and interpretations (continued) 

decommissioning has been completed or on winding up the fund, may be an equity instrument within the scope of the 
Standard of GRAP on Financial Instruments and is not within the scope of this Interpretation of the Standards of GRAP. 

The issues addressed in this Interpretation of the Standards of GRAP are: 

• how should a contributor account for its interest in a fund? 

• when a contributor has an obligation to make additional contributions, for example, in the event of the liquidation of 
another contributor, how should that obligation be accounted for? 

The effective date of the interpretation is for years beginning on or after 01 April 201 1 . 

The municipality has adopted the interpretation for the first time in the 2012 financial statements. 

The impact of the interpretation is not material. 


IGRAP 5: Applying the Restatement Approach under the Standard of GRAP on Financial Reporting in 
Hyperinflationary Economies 

This Interpretation of the Standards of GRAP provides guidance on how to apply the requirements of the Standard of GRAP 
on Financial Reporting in Hyperinflationary Economies (as revised in 2010) in a reporting period in which an entity identifies 
the existence of hyperinflation in the economy of its functional currency, when that economy was not hyperinflationary in the 
prior period, and the entity therefore restates its financial statements in accordance with the Standard of GRAP on Financial 
Reporting in Hyperinflationary Economies (as revised in 2010). 

The questions addressed in this Interpretation of the Standards of GRAP are: 

• how should the requirement '... stated in terms of the measuring unit current at the reporting date’ in paragraph .10 of the 
Standard of GRAP on Financial Reporting in Hyperinflationary Economies (as revised in 2010) be interpreted when an 
entity applies the Standard of GRAP? 

• a contributor’s right to access the assets is restricted. 

The effective date of the interpretation is for years beginning on or after 01 April 201 1 . 

The municipality has adopted the interpretation for the first time in the 2012 financial statements. 

The impact of the interpretation is not material. 


IGRAP 6: Loyalty Programmes 

This Interpretation of the Standards of GRAP is not applicable to the municipality 

The effective date of the interpretation is for years beginning on or after the 1 April 201 1 . 

The municipality has adopted the interpretation for the first time in the 2012 financial statements. 
The impact of the interpretation is not material. 


IGRAP 7: The Limit on a Defined Benefit Asset, Minimum Funding Requirements and their Interaction 

This Interpretation of the Standards of GRAP applies to all post-employment defined benefits and other long-term employee 
defined benefits. 

For the purpose of this Interpretation of the Standards of GRAP, minimum funding requirements are any requirements to 
fund a post-employment or other long-term defined benefit plan. 

The issues addressed in this Interpretation of the Standards of GRAP are: 

• When refunds or reductions in future contributions should be regarded as available in accordance with paragraph .68 of 
the Standard of GRAP on Employee Benefits. 

• How a minimum funding requirement might affect the availability of reductions in future contributions. 

The effective date of the interpretation is for years beginning on or after 01 April 201 1 . 

The municipality has adopted the interpretation for the first time in the 2012 financial statements. 

The impact of the interpretation is not material. 


IGRAP 8: Agreements for the Construction of Assets from Exchange Transactions 


34 





Mogale City Local Municipality 

(Registration number GT 481) 

Trading as Mogale City Local Municipality 

Annual Financial Statements for the year ended 30 June 2012 


Notes to the Annual Financial Statements 


2. New standards and interpretations (continued) 

This Interpretation applies to the accounting for revenue and associated expenses by entities that undertake the 
construction of assets in exchange transactions directly or through subcontractors. The construction of assets entered into 
by entities where funding to support the construction activity will be provided by an appropriation or similar allocation of 
general government revenue or by aid or grant funds are excluded from the scope of this Interpretation of the Standards of 
GRAP. 

Agreements in the scope of this Interpretation of the Standards of GRAP are agreements for the construction of assets in 
exchange transactions. In addition to the construction of assets in exchange transactions, such agreements may include 
the delivery of other goods or services. 

The Interpretation of the Standards of GRAP addresses two issues: 

• Is the agreement within the scope of the Standard of GRAP on Construction Contracts (as revised in 2010) or the 
Standard of GRAP on Revenue from Exchange Transactions (as revised in 2010)? 

• When should revenue from the construction of assets in exchange transactions be recognised? 

The effective date of the interpretation is for years beginning on or after 01 April 201 1 . 

The municipality has adopted the interpretation for the first time in the 2012 financial statements. 

The impact of the interpretation is not material. 


IGRAP 9: Distributions of Non-cash Assets to Owners 

This Interpretation of the Standards of GRAP is not applicable to the municipality. 

The effective date of the interpretation is for years beginning on or after 01 April 201 1 . 

The municipality has adopted the interpretation for the first time in the 2012 financial statements. 
The impact of the interpretation on adoption. 


IGRAP 10: Assets Received from Customers 

This Interpretation of the Standards of GRAP applies to the accounting for the receipt of items of property, plant and 
equipment by entities that receive such assets from their customers. 

Agreements within the scope of this Interpretation of the Standards of GRAP are those in which an entity receives from a 
customer an item of property, plant and equipment that the entity must then use either to connect the customer to a network 
or to provide the customer with ongoing access to a supply of goods or services, or to do both. 

This Interpretation of the Standards of GRAP also applies to agreements in which an entity receives cash from a customer 
when that amount of cash must be used only to construct or acquire an item of property, plant and equipment and the entity 
must then use the item of property, plant and equipment either to connect the customer to a network or to provide the 
customer with ongoing access to a supply of goods or services, or to do both. 

This Interpretation of the Standards of GRAP does not apply to agreements in which the receipt occurs as part of a non- 
exchange transaction as defined in the Standard of GRAP on Revenue from Non-exchange Transactions (Taxes and 
Transfers), or infrastructure used in a public-private partnership agreement (see the Guideline on Accounting for Public- 
private Partnerships), or assets received in a transfer of functions. 

The Interpretation of the Standards of GRAP addresses the following issues: 

• Is the definition of an asset met? 

• If the definition of an asset is met, how should the received item of property, plant and equipment be measured on initial 
recognition? 

• If the item of property, plant and equipment is measured at fair value on initial recognition, how should the resulting credit 
be accounted for? 

• How should the entity account for a receipt of cash from its customer? 

The effective date of the interpretation is for years beginning on or after 01 April 201 1 . 

The municipality has adopted the interpretation for the first time in the 2012 financial statements. 

The impact of the interpretation is not material. 


35 





Mogale City Local Municipality 

(Registration number GT 481) 

Trading as Mogale City Local Municipality 

Annual Financial Statements for the year ended 30 June 2012 


Notes to the Annual Financial Statements 


2. New standards and interpretations (continued) 

IGRAP 13: Operating Leases - Incentives 

In negotiating a new or renewed operating lease, the lessor may provide incentives for the lessee to enter into the 
agreement. Examples of such incentives are an up-front cash payment to the lessee or the reimbursement or assumption 
by the lessor of costs of the lessee (such as relocation costs, leasehold improvements and costs associated with a pre- 
existing lease commitment of the lessee). Alternatively, initial periods of the lease term may be agreed to be rent free or at 
a reduced rent. 

The issue is how incentives in an operating lease should be recognised in the financial statements of both the lessee and 
the lessor. 

The effective date of the interpretation is for years beginning on or after 01 April 201 1 . 

The municipality has adopted the interpretation for the first time in the 2012 financial statements. 

The impact of the interpretation is not material. 

IGRAP 14: Evaluating the Substance of Transactions Involving the Legal Form of a Lease 

A municipality may enter into a transaction or a series of structured transactions (an arrangement) with an unrelated party 
or parties (an investor) that involves the legal form of a lease. For example, a municipality may lease assets to an investor 
and lease the same assets back, or alternatively, legally sell assets and lease the same assets back. The form of each 
arrangement and its terms and conditions can vary significantly. 

When an arrangement with an investor involves the legal form of a lease, the issues are: 

• how to determine whether a series of transactions is linked and should be accounted for as one transaction; 

• whether the arrangement meets the definition of a lease under the Standard of GRAP on Leases (as revised in 2010); 
and, if not, 

-whether a separate investment account and lease payment obligations that might exist represent assets and liabilities of 
the entity; 

-how the entity should account for other obligations resulting from the arrangement; and 
-how the entity should account for a fee it might receive from an investor. 

The effective date of the interpretation is for years beginning on or after 01 April 201 1 . 

The municipality has adopted the interpretation for the first time in the 2012 financial statements. 

The impact of the interpretation is not material. 


IGRAP 15: Revenue - Barter Transactions Involving Advertising Services 

A municipality (seller) may enter into a barter transaction to provide advertising services in exchange for receiving other 
services from its customer. Advertisements may be displayed on the Internet or poster sites, broadcast on the television or 
radio, published in magazines or journals, or presented in another medium. An example could be where a municipality 
offers advertising services to local businesses in its community newsletters in exchange for repairs and maintenance 
services provided by those businesses. These repair and maintenance services may, for example, take the form of 
repairing and maintaining office buildings or motor vehicles owned by the municipality. 

In some cases, no cash or other consideration is exchanged between the entities. In some other cases, equal or 
approximately equal amounts of cash or other consideration are also exchanged. 

A seller that provides advertising services in the course of its ordinary activities recognises revenue under the Standard of 
GRAP on Revenue from Exchange Transactions (as revised in 2010) from a barter transaction involving advertising when, 
amongst other criteria, the services exchanged are dissimilar in terms of paragraph .18 in the Standard of GRAP on 
Revenue from Exchange Transactions (as revised in 2010) and the amount of revenue can be measured reliably in terms of 
paragraph .20(a) in the Standard of GRAP on Revenue from Exchange Transactions (as revised in 2010). This 
Interpretation of the Standards of GRAP only applies to an exchange of dissimilar services. An exchange of similar 
advertising services is not a transaction that generates revenue under the Standard of GRAP on Revenue from Exchange 
Transactions (as revised in 2010). 

The issue is under what circumstances can a seller reliably measure revenue at the fair value of advertising services 
received or provided in a barter transaction. 

The effective date of the interpretation is for years beginning on or after 01 April 201 1 . 

The municipality has adopted the interpretation for the first time in the 2012 financial statements. 


36 





Mogale City Local Municipality 

(Registration number GT 481) 

Trading as Mogale City Local Municipality 

Annual Financial Statements for the year ended 30 June 2012 


Notes to the Annual Financial Statements 


2. New standards and interpretations (continued) 

The impact of the interpretation is not material. 

GRAP 1 (as revised 2010): Presentation of Financial Statements 

The revision resulted in various terminology and definition changes. 

Additional commentary has been added, describing the purpose of financial statements in the public sector. 

Commentary has been added to explain that where legislation requires a departure from a particular Standard of GRAP and 
that departure is material, entities cannot claim compliance with the Standards of GRAP. 

Additional disclosure requirements have been added regarding the following areas: assets and liabilities included in 
disposal groups classified as held for sale, biological assets and the use of transitional provisions in accounting policy 

The effective date of the amendment is for years beginning on or after 01 April 201 1 . 

The municipality has adopted the amendment for the first time in the 2012 financial statements. 

The impact of the amendment is not material. 

GRAP 2 (as revised 2010): Cash Flow Statements 

The revision resulted in various terminology and definition changes. 

Operating cash flows: 

• Where a municipality is in the business of renting and subsequently selling the same assets, these cash flows should be 
regarded as operating rather than investing cash flows. 

Investing cash flows: 

• Only expenditures incurred on a recognised asset qualify to be classified as investing activities in the cash flow statement. 
Acquisitions and disposals of controlled entities and other operating units: 

• Guidance relating to acquisitions and disposals of entities, particularly those on another basis of accounting, has been 
deleted. 

Disclosure of undrawn borrowing facilities, restricted cash balances and the operating, investing and financing cash flows of 
jointly controlled entities accounted for using the proportionate consolidation method, now encouraged rather than required. 

The effective date of the amendment is for years beginning on or after 01 April 201 1 . 

The municipality has adopted the amendment for the first time in the 2012 financial statements. 

The impact of the amendment is not material. 

GRAP 3 (as revised 2010): Accounting policies, Changes in Accounting Estimates and Errors 

The revision resulted in various terminology and definition changes. 

Paragraphs added to Changes in accounting policies: 

• A change from one basis of accounting to another basis of accounting is a change in accounting policy. 

• A change in the accounting treatment, recognition or measurement of a transaction, event or condition within a basis of 
accounting is regarded as a change in accounting policy. 

Selection of accounting policies: 

• The reference to the Accounting Practices Committee (APC) of SAICA has been deleted from paragraph .1 1 on the basis 
that it is not a standard setter and that entities would consider information from a wide range of sources in formulating an 
accounting policy and not just the pronouncements of the APC. 

• Commentary on the selection of benchmark and alternative accounting policies has been deleted. 

The effective date of the amendment is for years beginning on or after 01 April 201 1 . 

The municipality has adopted the amendment for the first time in the 2012 financial statements. 

The impact of the amendment is not material. 

GRAP 4 (as revised 2010): The Effects of Changes in Foreign Exchange Rates 

Terminology changes: 

Where reference has been made to the net realisable values of inventories, current replacement cost has also been 
included to allow for the appropriate valuation of inventories where they are distributed as part of a non-exchange 
transaction. Reference to ‘trade’ receivables has been amended to ‘receivables’. 


37 





Mogale City Local Municipality 

(Registration number GT 481) 

Trading as Mogale City Local Municipality 

Annual Financial Statements for the year ended 30 June 2012 


Notes to the Annual Financial Statements 


2. New standards and interpretations (continued) 

Monetary items: 

Paragraph .15 clarifies that child support grants are ‘payables’, and not just ‘obligations’ in terms of the current 
requirements of the Standard of GRAP on Provisions, Contingent Liabilities and Contingent Assets (GRAP 19). 

The effective date of the amendment is for years beginning on or after 01 April 201 1 . 

The municipality has adopted the amendment for the first time in the 2012 financial statements. 

The impact of the amendment is not material. 

GRAP 9 (as revised 2010): Revenue from Exchange Transactions 

The revision resulted in various terminology and definition changes. 

Various amendments, deletions and additions to examples included in the appendix. 

The effective date of the amendment is for years beginning on or after 01 April 201 1 . 

The municipality has adopted the amendment for the first time in the 2012 financial statements. 

The impact of the amendment is not material. 

GRAP 10 (as revised 2010): Financial Reporting in Hyperinflationary Economies 

Certain terminology changes: 

• The reference to ‘current cost’ in paragraph .30 has been deleted. 

• Where reference has been made to ‘net realisable value’, ‘current replacement cost’ has been added. 

Net monetary position: 

References to ‘surplus’ or ‘deficit’ have been changed, throughout the document, to ‘gain’ or ‘loss’. 

Interpretations: 

Text included in this Standard of GRAP from IFRIC Interpretation 7 on Applying the Restatement Approach under IAS 29 
Financial Reporting in Hyperinflationary Economies has been deleted. 

The effective date of the amendment is for years beginning on or after 01 April 201 1 . 

The municipality has adopted the amendment for the first time in the 2012 financial statements. 

The impact of the amendment is not material. 


38 





Mogale City Local Municipality 

(Registration number GT 481) 

Trading as Mogale City Local Municipality 

Annual Financial Statements for the year ended 30 June 2012 

Notes to the Annual Financial Statements 

Figures in Rand 2012 2011 


2. New standards and interpretations (continued) 

GRAP 11 (as revised 2010): Construction Contracts 

The revision resulted in certain terminology changes: 

Other amendments: 

• An example has been added to clarify when an entity acts as a contractor in a construction contract arrangement. 

• The example in paragraph .11 has been deleted as it is inappropriate for the South African public sector. 

• The explanatory text relating to ‘contractors’ has been amended to clarify that an entity can be a contractor if it performs 
construction related activities itself or through subcontractors. 

The effective date of the amendment is for years beginning on or after 01 April 201 1 . 

The municipality has adopted the amendment for the first time in the 2012 financial statements. 

The impact of the amendment is not material. 

GRAP 12 (as revised 2010): Inventories 

The revision resulted in various terminology and definition changes. 

Cost formulas: 

Paragraph .34 was amended and .35 was added to separate the principle from the exception when applying the cost 
formula for inventories with a similar nature and use to the entity. 

Recognition as an expense: 

Where reference has been made to ‘net realisable value’, ‘current replacement cost’ has been added. 

Fair value measurement: 

The appendix on how to determine fair value has been deleted. 

The effective date of the amendment is for years beginning on or after 01 April 201 1 . 

The municipality has adopted the amendment for the first time in the 2012 financial statements. 

The impact of the amendment is not material. 

GRAP 13 (as revised 2010): Leases 

The revision resulted in various terminology and definition changes. 

Scope: 

Paragraph .04 has been included to clarify that this Standard does not apply to lease agreements to explore for or use 
natural resources such as oil, gas, timber, metals and other mineral rights and licensing agreements for such items as 
motion picture films, video recordings, plays, manuscripts, patents and copyrights. 

Non-current Assets Field for Sale and Discontinued Operations: 

Paragraph .51 has been added to clarify that finance lease assets classified as held for sale in accordance with the 
Standard of GRAP on Non-current Assets Field for Sale and Discontinued Operations shall be accounted for in accordance 
with that Standard. 

Guidance on accounting for finance leases by lessors: 

The paragraph (previously paragraph .53) that provided guidance on the recognition of assets where entities enter into 
arrangements with private sector entities has been deleted as the Guideline on Accounting for Public Private Partnerships 
supersedes this guidance. 

Guidance on operating lease incentives and substance over legal form: 

The guidance included in the original text on substance over legal form has been deleted. 

Classification of leases on land and buildings elements: 

The guidance on the classification of land and buildings has been amended to ensure that the element of the lease relating 
to the land is classified as a finance lease where significant risks and rewards have been transferred, despite there being 
no transfer of title, consistent with the general classification guidance. 

The effective date of the amendment is for years beginning on or after 01 April 201 1 . 


39 






Mogale City Local Municipality 

(Registration number GT 481) 

Trading as Mogale City Local Municipality 

Annual Financial Statements for the year ended 30 June 2012 

Notes to the Annual Financial Statements 

Figures in Rand 2012 2011 


2. New standards and interpretations (continued) 

The municipality has adopted the amendment for the first time in the 2012 financial statements. 

The impact of the amendment is not material. 

GRAP 14 (as revised 2010): Events After the Reporting Date 

Existence of a liability for dividends or similar distributions: 

Paragraph .13 of GRAP 14 was amended to clarify that no liability exists at the reporting date for dividends or similar 
distributions declared after the reporting date. 

The effective date of the amendment is for years beginning on or after 01 April 201 1 . 

The municipality has adopted the amendment for the first time in the 2012 financial statements. 

The impact of the amendment is not material. 

GRAP 16 (as revised 2010): Investment Property 

The revision resulted in various terminology and definition changes. 

Recognition of investment property: 

Additional commentary has been included in paragraph .19 and .20 to explain paragraph .18 that outlines the 
recognition criteria for investment property; 

This Standard of GRAP includes investment property under construction as it was inconsistent with the 
requirement that investment property being redeveloped was still within the scope of this Standard of GRAP, but 
not the initial development. As a result paragraphs .10 and .11 were amended, paragraphs .60 and .61 inserted, 
and paragraphs .25 and .65(e) of the original text deleted; 

The measurement principles were also amended accordingly to allow investment property under construction to 
be measured at cost if fair value cannot be measured reliably, until such time as the fair value can be measured 
reliably; and 

Additional guidance has been included in the examples of investment property to clarify that the rentals earned 
do not have to be on a commercial basis or market related for the property to be classified as investment 
property. 

Disclosure: 

Municipalities are encouraged, rather than required, to disclose the fair value of investment property when this is materially 
different from the carrying amount. 

The effective date of the amendment is for years beginning on or after 01 April 201 1 . 

The municipality has adopted the amendment for the first time in the 2012 financial statements. 

The impact of the amendment is not material. 

GRAP 17 (as revised 2010): Property, Plant and Equipment 

The revision resulted in various terminology and definition changes. 

Scope: 

The recognition and measurement of exploration and evaluation assets have been added to the scope 
exclusions; and 

Investment properties under construction have been removed from the scope. 

Measurement at initial recognition: 

Paragraph .23 and .24 have been amended to clarify that the guidance applicable to determine fair value for revalued 
assets applies equally to the initial measurement of items of property, plant and equipment at fair value. 

Depreciable amount and depreciation period: 

An additional paragraph has been added to clarify that reviewing the useful life of an asset on an annual basis does not 
require the municipality to amend the previous estimate unless expectations differ from the previous estimate. 
Derecognition: 

The requirement to not classify gains from the disposal of property, plant and equipment as revenue, has been 
removed; and 

Paragraph .79 has been added in line with the lASB Improvements Project to clarify that where assets are held 
for rental to others in the ordinary course of operations and the municipality subsequently sells the assets, the 
Standard of GRAP on Non-current Assets Field for Sale and Discontinued Operations does not apply. Rather, 
these assets are to be transferred and treated in accordance with the Standard of GRAP on Inventories. 

Disclosures: 


40 






Mogale City Local Municipality 

(Registration number GT 481) 

Trading as Mogale City Local Municipality 

Annual Financial Statements for the year ended 30 June 2012 

Notes to the Annual Financial Statements 

Figures in Rand 2012 2011 


2. New standards and interpretations (continued) 

The required disclosures in paragraph .90 have been amended to encouraged disclosures. Added to the list of 
encourage disclosures is the fair value disclosure of assets where the cost model is used; and 
The requirement to disclose the cost basis for revaluated assets was removed. 

The effective date of the amendment is for years beginning on or after 01 April 201 1 . 

The municipality has adopted the amendment for the first time in the 2012 financial statements. 

The impact of the amendment is not material. 

GRAP 19 (as revised 2010): Provisions, Contingent Liabilities and Contingent Assets 

The revision resulted in certain terminology changes. 

Social benefits: 

Paragraphs .08 and .16(a) clarify that social benefits due at year end are ‘payables’, as the amounts due are certain in 
terms of legislation. 

Binding agreements for restructurings: 

Paragraph .87 has been amended to clarify that restructurings may take place in the public sector in terms of directives, 
legislation or other means. These alternative means are enforceable and may give rise to an obligation. 

Interpretations: 

In developing the Standard initially, the Board included relevant text from any Interpretation that had been issued by the 
International Financial Reporting Interpretations Committee (IFRIC) relating to provisions, contingent liabilities and 
contingent assets. The Board included selected text from IFRIC 1 on Changes in Decommissioning, Restoration and 
Similar Liabilities and IFRIC 5 Rights to Interests Arising from Decommissioning, Restoration and Environmental 
Rehabilitation Funds in line with the Board’s decisions. The Board concluded at its May 2008 meeting that it would issue 
any Interpretations as separate documents rather than dispersing the text of the Interpretations across various Standards. 
As a result, paragraphs .37 to .43, .74 to .80, and Appendix F of the previous version of GRAP 19, have been deleted. 

The effective date of the amendment is for years beginning on or after 01 April 201 1 . 

The municipality has adopted the amendment for the first time in the 2012 financial statements. 

The impact of the amendment is not material. 

GRAP 100 (as revised 2010): Non-current Assets Held for Sale and Discontinued Operations 

The revision resulted in various terminology and definition changes. 

Scope: 

Paragraph .07 has been added to clarify the application of other Standards of GRAP to assets classified as non-current 
assets (or disposal groups) held for sale. 

Plan to sell the controlling interest in a controlled entity: 

•The Standard has been amended to clarify that an entity that is committed to a sales plan involving loss of control in a 
controlled entity shall classify all the assets and liabilities of that controlled entity as held for sale when the required criteria 
are met. 

• The Standard has been amended to clarify that an entity that is committed to a sales plan involving loss of control of a 
controlled entity shall disclose the information required when the controlled entity is a disposal group that meets the 
definition of a discontinued operation. 

Examples included in Appendix: 

An additional example has been included regarding sale expected to be completed within one year. 

The effective date of the amendment is for years beginning on or after 01 April 201 1 . 

The municipality has adopted the amendment for the first time in the 2012 financial statements. 

The impact of the amendment is not material. 

Standards and Interpretations not early adopted 

The following standards and interpretations are effective and have not been early adopted by the municipality: 


41 







Mogale City Local Municipality 

(Registration number GT 481) 

Trading as Mogale City Local Municipality 

Annual Financial Statements for the year ended 30 June 2012 

Notes to the Annual Financial Statements 

Figures in Rand 2012 2011 


2. New standards and interpretations (continued) 

GRAP 21: Impairment of non-cash-generating assets 

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

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

A 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, an entity estimates the recoverable service amount of the asset. 

The present value of the remaining service potential of a non-cash-generating asset is determined using one of the 
following approaches: 

• Depreciated replacement cost approach 

• Restoration cost approach 

• Service units approach 

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. 

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

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. 

The effective date of the standard is for years beginning on or after 01 April 2012. 

It is unlikely that the standard will have a material impact on the municipality's annual financial statements. 

The municipality does not envisage the adoption of the standard / interpretation until such time as it becomes applicable to 
the municipality's operations. 

GRAP 23: Revenue from Non-exchange Transactions 

Revenue from non-exchange transactions arises when an entity receives value from another entity without directly giving 
approximately equal value in exchange. An asset acquired through a non-exchange transaction shall initially be measured 
at its fair value as at the date of acquisition. 

This revenue will be measured at the amount of increase in net assets recognised by the municipality. 

An inflow of resources from a non-exchange transaction recognised as an asset shall be recognised as revenue, except to 
the extent that a liability is recognised for the same inflow. As an entity satisfies a present obligation recognised as a liability 
in respect of an inflow of resources from a non-exchange transaction recognised as an asset, it will reduce the carrying 
amount of the liability recognised as an amount equal to that reduction. 

The effective date of the standard is for years beginning on or after 01 April 2012. 

It is unlikely that the standard will have a material impact on the municipality's annual financial statements. 

The municipality does not envisage the adoption of the standard / interpretation until such time as it becomes applicable to 
the municipality's operations. 


42 






Mogale City Local Municipality 

(Registration number GT 481) 

Trading as Mogale City Local Municipality 

Annual Financial Statements for the year ended 30 June 2012 

Notes to the Annual Financial Statements 

Figures in Rand 2012 2011 


2. New standards and interpretations (continued) 


GRAP 24: Presentation of Budget Information in the Financial Statements 

Subject to the requirements of paragraph . 1 9, an entity shall present a comparison of the budget amounts for which it is 
held publicly accountable and actual amounts either as a separate additional financial statement or as additional budget 
columns in the financial statements currently presented in accordance with Standards of GRAP. The comparison of budget 
and actual amounts shall present separately for each level of legislative oversight: 

• the approved and final budget amounts; 

• the actual amounts on a comparable basis; and 

• by way of note disclosure, an explanation of material differences between the budget for which the municipality is held 
publicly accountable and actual amounts, unless such explanation is included in other public documents issued in 
conjunction with the financial statements, and a cross reference to those documents is made in the notes. 

Where an entity prepares its budget and annual financial statements on a comparable basis, it includes the comparison as 
an additional column in the primary annual financial statements. Where the budget and annual financial statements are not 
prepared on a comparable basis, a separate statement is prepared called the ‘Statement of Comparison of Budget and 
Actual Amounts’. This statement compares the budget amounts with the amounts in the annual financial statements 
adjusted to be comparable to the budget. 

A comparable basis means that the budget and annual financial statements: 

• are prepared using the same basis of accounting i.e. either cash or accrual; 

• include the same activities and entities; 

• use the same classification system; and 

• are prepared for the same period. 

The effective date of the standard is for years beginning on or after 01 April 2012. 

It is unlikely that the standard will have a material impact on the municipality's annual financial statements. 

The municipality does not envisage the adoption of the standard / interpretation until such time as it becomes applicable to 
the municipality's operations. 

GRAP 25: Employee benefits 

The objective of GRAP25 is to prescribe the accounting and disclosure for employee benefits. The Standard requires a 
municipality to recognise: 

• a liability when an employee has provided service in exchange for employee benefits to be paid in the future; and 

• an expense when a municipality consumes the economic benefits or service potential arising from service provided by an 
employee in exchange for employee benefits. 

The standard GRAP states the recognition, measurement and disclosure requirements of: 

• Short-term employee benefits; 

-All short-term employee benefits; 

-Short-term compensated absences; 

-Bonus, incentive and performance related payments; 

• Post-employment benefits: Defined contribution plans; 

• Other long-term employee benefits; 

• Termination benefits. 

The major difference between this Standard of GRAP and IAS 1 9 is with regards to the treatment of actuarial gains and 
losses and past service costs. This Standard of GRAP requires a municipality to recognise all actuarial gains and losses 
and past service costs immediately in the statement of financial performance once occurred. 

The effective date of the standard is for years beginning on or after 01 April 201 3. 

It is unlikely that the standard will have a material impact on the municipality's annual financial statements. 

The municipality does not envisage the adoption of the standard / interpretation until such time as it becomes applicable to 
the municipality's operations. 

GRAP 26: Impairment of cash-generating assets 

Cash-generating assets are those assets held by a municipality with the primary objective of generating a commercial 
return. When an asset is deployed in a manner consistent with that adopted by a profit-orientated entity, it generates a 


43 






Mogale City Local Municipality 

(Registration number GT 481) 

Trading as Mogale City Local Municipality 

Annual Financial Statements for the year ended 30 June 2012 

Notes to the Annual Financial Statements 

Figures in Rand 2012 2011 


2. New standards and interpretations (continued) 

commercial return. 

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

An entity assesses at each reporting date whether there is any indication that a cash-generating asset may be impaired. If 
any such indication exists, a municipality estimates the recoverable amount of the asset. When estimating the value in use 
of an asset, a municipality estimates the future cash inflows and outflows to be derived from continuing use of the asset and 
from its ultimate disposal and a municipality applies the appropriate discount rate to those future cash flows. 

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. 

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, a 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, an entity 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. 

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. 

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

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

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. 

The effective date of the standard is for years beginning on or after 01 April 2012. 

It is unlikely that the standard will have a material impact on the municipality's annual financial statements. 

The municipality does not envisage the adoption of the standard / interpretation until such time as it becomes applicable to 
the municipality's operations. 

GRAP 27: Agriculture 

This Standard of GRAP replaces the previous Standard of GRAP on Agriculture (GRAP 101) due to the IPSASB that has 
issued an IPSAS on Agriculture (IPSAS 27). 

The effective date of the standard is for years beginning on or after 01 April 201 3. 

It is unlikely that the standard will have a material impact on the municipality’s annual financial statements. 

The municipality does not envisage the adoption of the standard / interpretation until such time as it becomes applicable to 
the municipality’s operations. 


44 






Mogale City Local Municipality 

(Registration number GT 481) 

Trading as Mogale City Local Municipality 

Annual Financial Statements for the year ended 30 June 2012 

Notes to the Annual Financial Statements 

Figures in Rand 2012 2011 


2. New standards and interpretations (continued) 

GRAP 31 : Intangible Assets 

This Standard of GRAP replaces the previous Standard of GRAP on Intangible Assets (GRAP 102) due to the IPSASB that 
has issued an IPSAS on Intangible Assets (IPSAS 31). 

The effective date of the standard is for years beginning on or after 01 April 201 3. 

It is unlikely that the standard will have a material impact on the municipality’s annual financial statements. 

The municipality does not envisage the adoption of the standard / interpretation until such time as it becomes applicable to 
the municipality’s operations. 

GRAP 103: Heritage Assets 

Grap 103 defines heritage assets as assets which have a cultural, environmental, historical, natural, scientific, technological 
or artistic significance and are held indefinitely for the benefit of present and future generations. 

Certain heritage assets are described as inalienable items thus assets which are retained indefinitely and cannot be 
disposed of without consent as required by law or otherwise. 

A heritage asset should be recognised as an asset only if: 

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

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

The standard required judgment in applying the initial recognition criteria to the specific circumstances surrounding the 
entity and the assets. 

Grap 103 states that a heritage asset should be measured at its cost unless it is acquired through a non-exchange 
transaction which should then be measured at its fair value as at the date of acquisition. 

In terms of the standard, an entity has a choice between the cost and revaluation model as accounting policy for 
subsequent recognition and should apply the chosen policy to an entire class of heritage assets. 

The cost model requires a class of heritage assets to be carried at its cost less any accumulated impairment losses. 

The revaluation model required a class of heritage assets to be carried at its fair value at the date of the revaluation less 
any subsequent impairment losses. The standard also states that a restriction on the disposal of a heritage asset does not 
preclude the entity from determining the fair value. 

Grap 1 03 prescribes that when determining the fair value of a heritage asset that has more than one purpose, the fair value 
should reflect both the asset’s heritage value and the value obtained from its use in the production or supply of goods or 
services or for administrative purposes. 

If a heritage asset’s carrying amount is increased as a result of a revaluation, the increase should be credited directly to a 
revaluation surplus. However, the increase should be recognised in surplus or deficit to the extent that it reverses a 
revaluation decrease of the same heritage asset previously recognised in surplus or deficit. If a heritage asset’s carrying 
amount is decreased as a result of a revaluation, the decrease should be recognised in surplus or deficit. However, the 
decrease should be debited directly to a revaluation surplus to the extent of any credit balance existing in the revaluation 
surplus in respect of that heritage asset. 

Grap 103 states that a heritage asset should not be depreciated but an entity should assess at each reporting date whether 
there is an indication that it may be impaired. 

In terms of the standard, compensation from third parties for heritage assets that have been impaired, lost or given up, 
should be included in surplus or deficit when the compensation becomes receivable. 

For a transfer from heritage assets carried at a revalued amount to property, plant and equipment, investment property, 
inventories or intangible assets, the asset’s deemed cost for subsequent accounting should be its revalued amount at the 
date of transfer. The entity should treat any difference at that date between the carrying amount of the heritage asset and its 
fair value in the same way as a revaluation in accordance with this Standard. If an item of property, plant and equipment or 
an intangible asset carried at a revalued amount, or investment property carried at fair value is reclassified as a heritage 


45 






Mogale City Local Municipality 

(Registration number GT 481) 

Trading as Mogale City Local Municipality 

Annual Financial Statements for the year ended 30 June 2012 

Notes to the Annual Financial Statements 

Figures in Rand 2012 2011 


2. New standards and interpretations (continued) 

asset carried at a revalued amount, the entity applies the applicable Standard of GRAP to that asset up to the date of 
change. The entity treats any difference at that date between the carrying amount of the asset and its fair value in 
accordance with the applicable Standard of GRAP relating to that asset. For a transfer from investment property carried at 
fair value, or inventories to heritage assets at a revalued amount, any difference between the fair value of the asset at that 
date and its previous carrying amount should be recognised in surplus or deficit. 

The carrying amount of a heritage asset should be derecognised: 

• on disposal, or 

• when no future economic benefits or service potential are expected from its use or disposal. 

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

The effective date of the standard is for years beginning on or after 01 April 2012. 

It is unlikely that the standard will have a material impact on the municipality’s annual financial statements. 

The municipality does not envisage the adoption of the standard / interpretation until such time as it becomes applicable to 
the municipality’s operations. 

GRAP 104: Financial Instruments 

The standard prescribes recognition, measurement, presentation and disclosure requirements for financial instruments. 

Financial instruments are defined as those contracts that results in a financial asset in one municipality and a financial 
liability or residual interest in another municipality. A key distinguishing factor between financial assets and financial 
liabilities and other assets and liabilities, is that they are settled in cash or by exchanging financial instruments rather than 
through the provision of goods or services. 

In determening whether a financial intsruments is a financial asset, financial liability or a residual interests, a municipality 
considers the substance of the contract and not just the legal form. 

Financial assets and financial liabilities are initially recognised at fair value. Where a municipality subsequently measures 
financial assets and financial liabilities at amortised cost or cost, transactions costs are included in the cost of the asset or 
liability. 

The transaction price usually equals the fair value at initial recognition, except in certain circumstances, for example, where 
interest free credit is granted or where credit is granted at a below market rate of interest. Short term receivables and 
payables are not discounted where the initial credit period granted or received is consistent with terms used in the public 
sector, either through established practices or legislation. 

Concessionary loans are loans either received by or granted to another municipality on concessionary terms, e.g. at low 
interest rates and flexible repayment terms. On initial recognition, the fair value of a concessionary loan is the present value 
of the agreed contractual cash flows, discounted using a market related rate of interest for a similar transaction. The 
difference between the proceeds either received or paid and the present value of the contractual cash flows is accounted 
for as non-exchange revenue by the recipient of a concessionary loan in accordance with Standard of GRAP on Revenue 
from Non-exchange Revenue Transactions (Taxes and Transfers), and using the Framework for the Preparation and 

Presentation of Financial Statements (usually as an expense) by the grantor of the loan. 

Financial assets and financial liabilities are subsequently measured either at fair value or, amortised cost or cost. A 
municipality measures a financial instrument at fair value if it is: 

• a derivative; 

• a combined instrument designated at fair value, i.e. an instrument that includes a derivative and a non-derivative host 
contract; 

• held-for-trading; 

• a non-derivative instrument with fixed or determinable payments that is designated at initial recognition to be measured at 
fair value; 

• an investment in a residual interest for which fair value can be measured reliably; and 

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


46 






Mogale City Local Municipality 

(Registration number GT 481) 

Trading as Mogale City Local Municipality 

Annual Financial Statements for the year ended 30 June 2012 

Notes to the Annual Financial Statements 

Figures in Rand 2012 2011 


2. New standards and interpretations (continued) 

• Where the host contract is not a financial instrument within the scope of this Standard, the host contract and embedded 
derivative are accounted for separately using GRAP 104 and the relevant Standard of GRAP. 

Financial assets and financial liabilities that are non-derivative instruments with fixed or determinable payments, for 
example deposits with banks, receivables and payables, are measured at amortised cost. At initial recognition, a 
municipality can however designate such an instrument to be measured at fair value. 

A municipality can only measure investments in residual interests at cost where the fair value of the interest cannot be 
determined reliably. 

Once a municipality has classified a financial asset or a financial liability either at fair value or amortised cost or cost, it is 
only allowed to reclassify such instruments in limited instances. 

A municipality derecognises a financial asset, or the specifically identified cash flows of an asset, when: 

• the cash flows from the asset expire, are settled or waived; 

• significant risks and rewards are transferred to another party; or 

• despite having retained significant risks and rewards, an municipality has transferred control of the asset to another 
municipality. 

A municipality derecognises a financial liability when the obligation is extinguished. Exchanges of debt instruments between 
a borrower and a lender are treated as the extinguishment of an existing liability and the recognition of a new financial 
liability. Where an municipality modifies the term of an existing financial liability, it is also treated as the extinguishment of 
an existing liability and the recognition of a new liability. 

A municipality cannot offset financial assets and financial liabilities in the statement of financial position unless a legal right 
of set-off exists, and the parties intend to settle on a net basis. 

GRAP 104 requires extensive disclosures on the significance of financial instruments for an municipality’s statement of 
financial position and statement of financial performance, as well as the nature and extent of the risks that an municipality is 
exposed to as a result of its annual financial statements. Some disclosures, for example the disclosure of fair values for 
instruments measured at amortised cost or cost and the preparation of a sensitivity analysis, are encouraged rather than 
required. 

The effective date of the standard is for years beginning on or after 01 April 2012. 

It is unlikely that the amendment will have a material impact on the municipality's annual financial statements. 

The municipality does not envisage the adoption of the standard / interpretation until such time as it becomes applicable to 
the municipality's operations. 

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 2012 or later periods: 

IGRAP 16: Intangible Assets - Website Costs 

The Interpretation deals with the treatment of a municipality's own website. The guidance on website costs was previously 
included in the Standard of GRAP on Intangible Assets. 

It concludes that a municipaltity’s own website that arises from development and is for internal or external access is an 
internally generated intangible asset that is subject to the requirements of the Standard of GRAP on Intangible Assets. 

A website arising from development will be recognised as an intangible asset if, and only if, in addition to complying with the 
general requirements described in the Standard of GRAP on Intangible Assets for recognition and initial measurement, a 
municipality can satisfy the requirements in paragraph .54 in the Standard of GRAP on Intangible Assets, which in particular 
requires a municipality to be able to demonstrate how its website will generate probable future economic benefits or service 
potential. 

If a municipality is not able to demonstrate how a website developed solely or primarily for providing information about its 
own products and services will generate probable future economic benefits or service potential, all expenditure on 
developing such a website will be recognised as an expense when incurred. 

A website that is recognised as an intangible asset under this Interpretation will be measured after initial recognition by 
applying the requirements in the Standard of GRAP on Intangible Assets. 


47 






Mogale City Local Municipality 

(Registration number GT 481) 

Trading as Mogale City Local Municipality 

Annual Financial Statements for the year ended 30 June 2012 

Notes to the Annual Financial Statements 

Figures in Rand 2012 2011 


2. New standards and interpretations (continued) 

The effective date of the interpretation is for years beginning on or after 01 April 2013. 

The municipality expects to adopt the interpretation for the first time in the 2014 financial statements. 

It is unlikely that the interpretation will have a material impact on the municipality's financial statements. 

GRAP 18: Segment Reporting 

Segments are identified by the way in which information is reported to management, both for purposes of assessing 
performance and making decisions about how future resources will be allocated to the various activities undertaken by the 
municipality. The major classifications of activities identified in budget documentation will usually reflect the segments for 
which an entity reports information to management. 

Segment information is either presented based on service or geographical segments. Service segments relate to a 
distinguishable component of an entity that provides specific outputs or achieves particular operating objectives that are in 
line with the municipality’s overall mission. Geographical segments relate to specific outputs generated, or particular 
objectives achieved, by an entity within a particular region. 

No effective date has not yet been determined by the Minister of Finance. 

The municipality expects to adopt the standard once it becomes effective. 

The adoption of this standard is not expected to impact on the results of the municipality, but may result in more disclosure 
than is currently provided in the financial statements. 

GRAP 20: Related Party Disclosures 

The objective of this Standard of GRAP is to ensure that a municipality’s financial statements contain the disclosures 
necessary to draw attention to the possibility that its financial position and surplus or deficit may have been affected by the 
existence of related parties and by transactions and outstanding balances with such parties. 

This Standard of GRAP requires disclosure of related party relationships, transactions and outstanding balances, including 
commitments, in the consolidated and separate financial statements of the municipality in accordance with the Standard of 
GRAP on Consolidated and Separate Financial Statements. This Standard of GRAP also applies to individual financial 
statements. 

This Standard of GRAP requires that only transactions with related parties where the transactions are not concluded within 
normal operating procedures or on terms that are not no more or no less favourable than the terms it would use to conclude 
transactions with another municipality, entity or person are disclosed. 

The Standard of GRAP sets out the requirements, inter alia, for the disclosure of: 

Control; 

Related party transactions; and 
Remuneration of management 

No effective date has yet been determined by the Minister of Finance. 

The municipality expects to adopt the standard for the first time once it becomes effective. 

It is unlikely that the standard will have a material impact on the municipality's financial statements. 

GRAP 105: Transfers of functions between entities under common control 

The objective of this Standard is to establish accounting principles for the acquirer and transferor in a transfer of functions 
between entities under common control. A transfer of functions between municipalities under common control is a 
reorganisation and /or reallocation of functions bewteen municipalities that are ultimately controlled by the same entity 
before and after a transfer of functions. In the event of the transfer of funcitions between municipalities under common 
control, the assets and liabilities should be recognised (by the acquirer) at their carrying amounts and should be 
derecognised (by the transferor) at their carrying amounts. 

The difference between amount of consideration paid or received , if any , and the carrying amounts of assets and liabilities 
should be recognised in accumulated surplus/(deficit). Specific disclosures are required when there is a transfer of 
functions bewteen municipalities under commom control 

No effective date has yet been determined by the Minister of Finance. 

The municipality expects to adopt the standard for the first time once it becomes effective. 

The impact of this standard is currently being assessed. 

GRAP 106: Transfers of functions between entities not under common control 


48 






Mogale City Local Municipality 

(Registration number GT 481) 

Trading as Mogale City Local Municipality 

Annual Financial Statements for the year ended 30 June 2012 

Notes to the Annual Financial Statements 

Figures in Rand 2012 2011 


2. New standards and interpretations (continued) 

The objective of this Standard of GRAP is to establish accounting principles for the acquirer in a transfer of functions 
between entities not under common control. 

A transfer of functions between municipalities not under common control is a reorganisation and /or reallocation of functions 
bewteen municipalities that are not ultimately controlled by the same entity before and after a transfer of functions. In the 
event of the transfer of funcitions between municipalities not under common control, the assets and liabilities should be 
recognised (by the acquirer) at their acquisition date fair values and should be derecognised (by the acquiree) at their 
carrying amounts. The difference between amount of consideration paid or received , if any , and the fair value of assets 
and liabilities aquired assumed or carrying amounts of assets transferred and liabilities relinquished should be recognised 
in accumulated surplus/(deficit). for a transfer of functions bewtween municipalities not under common control there are 
some specific recognition and measurement principles and exceptions to the recognition and measurement principles 
Specific disclosures are required when there is a transfer of functions bewteen municipalities under commom control 

No effective date has yet been determined by the Minister of Finance. 

The municipality expects to adopt the standard for the first time once it becomes effective. 

The impact of this standard is currently being assessed. 

GRAP 107: Mergers 

The objective of this Standard of GRAP is to establish accounting principles for the combined municipality and combining 
municipalities in a merger. A merger is where a new combined municipality is started, no aquirer can be identified and the 
combining municipalities do not have any control over the municipality, in the event of the merger, the assets and liablities 
should be recognised (by the combined municipality) at their carrying amounts and should be derecognised ( by the 
combining municipalities) at their carrying amounts, the difference the carrying amounts of assets and liabilities should be 
recognised in accumulated surplus/(deficit). Specific disclosures are required when there is a merger. 

No effective date has yet been determined by the Minister of Finance. 

The municipality expects to adopt the standard for the first time once it becomes effective. 

The impact of this standard is currently being assessed. 

Improvements to Standards of Grap The 

following standard of GRAP have been amended as part of the ASB's improvements project for 201 1 : 

GRAP 1 ; 

GRAP 3; 

GRAP 7; 

GRAP 9; 

GRAP 12; 

GRAP 13; 

GRAP 16 and 17. 

The changes made will have no significant impact, except for the following: 

A change to the cost model when a reliable measure of fair value is no longer available (or vice versa) for an asset that that 
a standard of GRAP would otherwise require or permit to be measured at fair value are no longer considered to be a 
change in an accounting policy in terms of the standard of GRAP on Accounting Policies, Changes in Accounting Estimates 
and Errors ( as revised in 2010). A requirement to include transcation costs on initial recognition of an investment in an 
associate under the equity method, has been included in the Standard of GRAP Investments in Associates. 

Changes were made to the Standard of GRAP on Property, Plant and Equipment ( as revised in 2010) to ensure the 
consistent application of the principle where assets are acuired in exchange for non monetary assets when the exchange 
transcation lacks commercial substance. Further more the requirement to disclose property, plant and equipment that were 
temporarily idle, has been clarified. 

The effective date of the amendment is for years begginning on or after 01 April 2013. 

The municipality expects to adoptthe amendment for the first time in 2014 financial statements, 
it is unlikely that the amendment will have a material impact on the municipalities financial statements. 


3. Investment property 


2012 


2011 


49 







Mogale City Local Municipality 

(Registration number GT 481) 

Trading as Mogale City Local Municipality 

Annual Financial Statements for the year ended 30 June 2012 

Notes to the Annual Financial Statements 

Figures in Rand 2012 2011 


3. Investment property (continued) 

Cost / 
Valuation 

Accumulated Carrying value 
depreciation 
and 

accumulated 

impairment 

Cost / 
Valuation 

Accumulated Carrying value 
depreciation 
and 

accumulated 

impairment 

Investment property 

570,834,774 

(2,565,475) 568,269,299 

594,654,889 

- 594,654,889 


Reconciliation of investment property - 2012 



Opening 

Disposals 

Impairments 

Fair value 

Total 


balance 



adjustments 


Investment property 

594,654,889 

(1,817,884) 

(2,565,475) 

(22,002,231) 

568,269,299 


Reconciliation of investment property - 2011 



Opening 

Additions 

Fair value 

Total 


balance 


adjustments 


Investment property 

475,519,554 

63,499,548 

55,635,787 

594,654,889 


Valuation of investment property was done as at 30 June 2010 . I@ consulting was appointed to do the valauation for all 
infrastructure assets including Investments Property. Investment Property are carried at fair value. 

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

Fair Value changes on investments property was as a results of change in market conditions. 


4. Property, plant and equipment 




2012 



2011 



Cost / 
Valuation 

Accumulated Carrying value 
depreciation 
and 

accumulated 

impairment 

Cost / 
Valuation 

Accumulated Carrying value 
depreciation 
and 

accumulated 

impairment 

Buildings 

486,822,088 

(233,963,559) 

252,858,529 

435,694,945 

(220,471,993) 

215,222,952 

Plant and machinery 

22,735,938 

(12,824,506) 

9,911,432 

22,578,942 

(12,488,650) 

10,090,292 

Furniture and fixtures 

12,359,119 

(6,612,759) 

5,746,360 

9,477,796 

(6,147,635) 

3,330,161 

Motor vehicles 

20,115,717 

(15,903,238) 

4,212,479 

20,552,911 

(15,651,213) 

4,901,698 

Office equipment 

2,146,236 

(1,906,704) 

239,532 

2,104,381 

(1,845,295) 

259,086 

IT equipment 

13,026,772 

(8,718,055) 

4,308,717 

12,945,840 

(7,807,315) 

5,138,525 

Roads 

3,271,610,112 

;i, 050,967,275): 

2,220,642,837 

3,234,940,986 

(948,484,721): 

2,286,456,265 

Community assets 

905,126,376 

(368,360,608) 

536,765,768 

779,109,976 

(344,579,735) 

434,530,241 

Bins and containers 

6,643,060 

(6,479,840) 

163,220 

6,643,060 

(6,445,003) 

198,057 

Electricity 

2,507,304,154 

;i, 516,486,333) 

990,817,821 

2,464,390,876 

[1,474,942,631) 

989,448,245 

Emergency equipment 

73,198 

(21,507) 

51,691 

73,198 

(9,134) 

64,064 

Other leased Assets 

28,806,087 

(11,180,568) 

17,625,519 

15,936,137 

(2,654,862) 

13,281,275 

Animals PPE 

261,000 

(22,599) 

238,401 

- 

- 

- 

Inventory items 

1,226,293 

(128,885) 

1,097,408 

143,260 

(111,981) 

31,279 

Library books 

18,300,054 

(6,603,987) 

11,696,067 

16,897,089 

(4,676,740) 

12,220,349 

Wastewater network 

1,165,436,432 

(642,558,161) 

522,878,271 

1,115,108,960 

(623,480,003) 

491,628,957 

Water network 

910,751,290 

(480,711,460) 

430,039,830 

905,728,721 

(459,980,871) 

445,747,850 

Fieri tage 

51,361 

- 

51,361 

51,361 

- 

51,361 

Total 

9,372,795,287 

[4,363,450,044) 5,009,345,243 

9,042,378,439 

(4,129,777,782) 4,912,600,657 


50 














Mogale City Local Municipality 

(Registration number GT 481) 

Trading as Mogale City Local Municipality 

Annual Financial Statements for the year ended 30 June 2012 


Notes to the Annual Financial Statements 


Figures in Rand 





2012 

2011 

4. Property, plant and equipment (continued) 

Reconciliation of property, plant and equipment - 2012 






Opening 

Additions 

Disposals 

Transfers Depreciation 1 

Impairment Total 


balance 





loss 

Buildings 

215,222,952 

6,861,466 

(139,702) 

44,405,379 

(13,023,300) 

(468,266) 252,858,52! 

Plant and machinery 

10,090,292 

156,996 

- 

- 

(335,856) 

9,911,43: 

Furniture and fixtures 

3,330,161 

2,691,473 

(366) 

190,216 

(465,124) 

5,746,361 

Motor vehicles 

4,901,698 

89,880 

(527,074) 

- 

(252,025) 

4,212,47! 

Office equipment 

259,086 

41,855 

- 

- 

(61,409) 

239,53: 

IT equipment 

5,138,525 

90,934 

(10,002) 

- 

(910,740) 

4,308,71' 

Roads 

2,286,456,265 

30,537,690 

(4,243,649) 

9,442,337 (101,549,806) 

- 2,220,642,83 

Community assets 

434,530,241 

37,779,374 

(1,145,367) 

89,002,061 

(20,000,219) 

(3,400,322) 536,765,76: 

Other property, plant and 

- 

- 

- 

- 

- 

(t 

equipment 







Bins and containers 

198,057 

- 

- 

- 

(34,837) 

163,221 

Electricity 

989,448,245 

37,136,691 

(1,955,802) 

7,732,389 

(41,421,178) 

(122,524) 990,817,82 

Emergency Equipment 

64,064 

- 

- 

- 

(12,373) 

51,69 

Other leased Assets 

13,281,275 

12,869,950 

- 

- 

(8,525,706) 

17,625,51! 

Animals PPE 

- 

- 

- 

261,000 

(22,599) 

238,40 

Inventory items 

31,279 

1,083,033 

- 

- 

(16,904) 

1,097,40; 

Library books 

12,220,349 

1,402,965 

- 

- 

(1,927,247) 

11,696,06' 

Wastewater network 

491,628,957 

50,327,472 

- 

- 

(19,078,158) 

- 522,878,27 

Water network 

445,747,850 

2,702,740 

- 

2,319,829 

(20,730,589) 

- 430,039,831 

Fieri tage 

51,361 

- 

- 

- 

- 

51,36 


4,912,600,657 

183,772,519 

(8,021,962) 

153,353,211 (228,368,070) 

(3,991,112) 5,009,345,22: 

Reconciliation of property, plant and equipment - Restated 2011 





Opening 

Additions 

Disposals 

Depreciation 

Impairment 

Total 


balance 




loss 


Buildings 

225,003,760 

2,730,237 

- 

(12,511,045) 

- 

215,222,952 

Plant and machinery 

12,427,486 

742,971 

- 

(3,080,165) 

- 

10,090,292 

Furniture and fixtures 

2,660,083 

1,214,152 

(20,750) 

(523,324) 

- 

3,330,161 

Motor vehicles 

8,519,086 

- 

- 

(3,617,388) 

- 

4,901,698 

Office equipment 

421,873 

58,494 

(200) 

(221,081) 

- 

259,086 

IT equipment 

6,809,979 

667,560 

(295,906) 

(2,043,108) 

- 

5,138,525 

Roads 

2,347,992,844 

40,053,363 

(846,691) 

(98,456,967) 

(2,286,284) 

2,286,456,265 

Community assets 

426,174,980 

28,112,563 

(862,432) 

(17,839,546) 

(1,055,324) 

434,530,241 

Bins and containers 

83,866 

142,941 

- 

(28,750) 

- 

198,057 

Electricity 

992,561,408 

38,124,665 

- 

(41,191,987) 

(45,841) 

989,448,245 

Emergency Equipment 

5,698 

60,298 

- 

(1,932) 

- 

64,064 

Other leased Assets 

246,969 

14,783,571 

- 

(1,749,265) 

- 

13,281,275 

Inventory items 

66,414 

13,831 

(9,427) 

(39,539) 

- 

31,279 

Library books 

12,639,274 

1,325,259 

- 

(1,744,184) 

- 

12,220,349 

Wastewater network 

463,921,920 

48,037,616 

- 

(18,979,758) 

(1,350,821) 

491,628,957 

Water network 

463,939,453 

2,493,161 

- 

(20,684,764) 

- 

445,747,850 

Fieri tage 

51,361 

- 

- 

- 

- 

51,361 


4,963,526,454 

178,560,682 

(2,035,406) 

(222,712,803) 

(4,738,270)4,912,600,657 

Other information 







Details of properties 








51 







Mogale City Local Municipality 

(Registration number GT 481) 

Trading as Mogale City Local Municipality 

Annual Financial Statements for the year ended 30 June 2012 

Notes to the Annual Financial Statements 

Figures in Rand 2012 2011 


4. Property, plant and equipment (continued) 

Valuation of Property Plant and Equipment was done as at 30 June 2010 . I@ consulting was appointed to do the valuation 
for all infrastructure assets. Property plant and equipment is carried at costs. A register containing the information required 
by section 63 of the Municipal Finance Management Act is available for inspection at the registered office of the 
municipality. 

The effect between Assets and Income is as follows: 

Transferers of Cradle of Flumankind assets were as a result of demarcation of District Management Areas to Mogale City to 
the value of R 18,314,565 
Capital Spares to the value of R7, 732, 388 

Lanwen hostel donated to Mogale City to the value of R 36,852,981 

Krugersdorp Game Reserve buildings was transferred to Mogale City at a value of R 89,002,061. 

Buildings to the value of R 1, 000,000 was donated to Mogale City by the South African breweries. 

Biological assets transferred to Mogale City at a value of R3, 395, 876 

Krugersdorp Game Reserve moveable assets transferred to Mogale City at a value of R 190,217 
Krugersdorp Game Reserve animals PPE transferred to Mogale City at a value of R 261,000 

Included in the additions there is a work in progress of R 44,500,583 ( 201 1 :R 96,763,651 ) 

Work-in-progress reconciliation 

Buildings 
Community 
Electricity 
Roads 

Waste Water Network 
Water 

Furniture and Fittings 

44,500,583 96,763,650 


6,051,476 2,661,444 

14,993,097 17,008,467 

34,786,631 9,640,549 

(18,543,233) 17,093,606 

40,839,409 48,037,615 

(35,310,196) 2,321,969 

1,683,399 


The municipality has the assets with carrying value of R1 and is inteding to replace them in due course, below are the grouped 
category of those assets 


Property plant and equipment 


Cost Accumulated Carrying value 

depreciation 


Bins & Containers 


6,397,878 

6,397,877 

1 

Emergency Equipment 


2,499 

2,498 

1 

Furniture & fittings 


4,291 

4,290 

1 

Inventory items 


98,560 

98,497 

63 

Leased Assets 


840,608 

840,607 

1 

Motor Vehicles 


3,863,927 

3,863,926 

1 

Air Conditioners 


665,720 

665,719 

1 

Computer Software 


49,155 

49,154 

1 



11,922,638 

11,922,568 

70 

Capital Spares Reconciliation 





Opening balance 



13,037,051 

- 

Additions 



7,732,389 

13,037,051 

Spares Capitalised 



(9,490,154) 

- 




11,279,286 

13,037,051 

5. Intangible assets 


2012 


2011 



52 













Mogale City Local Municipality 

(Registration number GT 481) 

Trading as Mogale City Local Municipality 


Annual Financial Statements for the year ended 30 June 2012 

Notes to the Annual Financial Statements 

Figures in Rand 



2012 

2011 

5. Intangible assets (continued) 

Cost / 
Valuation 

Accumulated Carrying value 
amortisation 
and 

accumulated 

impairment 

Cost / 
Valuation 

Accumulated Carrying value 
amortisation 
and 

accumulated 

impairment 

Computer software 11,193,164 

(6,972,403) 4,220,761 

11,193,164 

(4,966,947) 

6,226,217 


Reconciliation of intangible assets - 2012 


Opening Amortisation Total 
balance 

Computer software 6,226,217 (2,005,456) 4,220,761 


Reconciliation of intangible assets - 2011 


Opening Additions Amortisation Total 
balance 

2,252,220 


Computer software 


5,983,511 (2,009,514) 6,226,217 









Mogale City Local Municipality 

(Registration number GT 481) 

Trading as Mogale City Local Municipality 

Annual Financial Statements for the year ended 30 June 2012 


Notes to the Annual Financial Statements 


Figures in Rand 

2012 

2011 

6. Other financial assets 



Available-for-sale 

Listed shares(Sanlam) 

348,920 

268,986 

Held to maturity 

Investments 

37,894,650 

35,699,209 

Total other financial assets 

38,243,570 

35,968,195 

Non-current assets 

Available-for-sale 

348,920 

268,986 

Held to maturity 

37,894,650 

35,699,209 


38,243,570 

35,968,195 


Fair value information 

The Listed shares (Sanlam) were valued at 30 June 2012 at the closing price at that date. 

Reconciliation of financial assets at fair value through surplus or deficit measured at level 3 
Reconciliation of financial assets available for sale - 2012 



Opening 

Gains or 

Closing 


balance 

losses in 
surplus or 

balance 



deficit 


Sanlam 

268,986 

79,934 

348,920 

Reconciliation of financial assets available for sale - 201 1 

Opening 

Gains or 

Closing 


balance 

losses in 
surplus or 

balance 



deficit 


Sanlam 

223,113 

45,873 

268,986 


Fair value information 

Available-for-sale financial assets are recognised at fair value, unless they are unlisted equity instruments and the fair value 
cannot be determined using other means, in which case they are measured at cost. Fair value information is not provided 
for these financial assets. 

Reconciliation of other financial assets 


Reconciliation of Held to Maturity financial assets 2012 



Opening 

Gains or 

Closing 


balance 

losses in 
surplus or 

balance 



deficit 


Rand Merchant bank(Securities held against DBSA loan) 

35,699,209 

2,195,441 

37,894,650 


Reconciliation of Held to Maturity financial assets 2011 


54 












Mogale City Local Municipality 

(Registration number GT 481) 

Trading as Mogale City Local Municipality 

Annual Financial Statements for the year ended 30 June 2012 

Notes to the Annual Financial Statements 

Figures in Rand 2012 2011 


6. Other financial assets (continued) 


Opening Gains or Closing 

balance losses in balance 

surplus or 
deficit 

1,956,628 35,699,209 


Rand Merchant Bank 


33,742,581 






Mogale City Local Municipality 

(Registration number GT 481) 

Trading as Mogale City Local Municipality 

Annual Financial Statements for the year ended 30 June 2012 

Notes to the Annual Financial Statements 

Figures in Rand 2012 2011 


6. Other financial assets (continued) 

Available-for-sale equity investments 

The carrying amount of these financial instruments is as follows: 

San lam (Pty) Ltd 

9670 interest in ordinary shares 348,920 268,986 


The Listed shares (Sanlam) were valued at 30 June 2012 at the closing price at that date. 

The municipality has not reclassified any financial assets from cost or amortised cost to fair value, or from fair value to cost 
or amortised cost during the current or prior year. 

There were no gains or losses realised on the disposal of held to maturity financial assets in 2012 and 2011, as all the 
financial assets were disposed of at their redemption date. 

Credit quality of other financial assets 

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

7. Financial assets by category 

The accounting policies for financial instruments have been applied to the line items below: 

2012 


Other financial assets (Investment) (refer note 6) 

Other receivables from exchange transcation (refer note 10) 
Consumer Debtors (refer note 1 1 ) 

Money market account( Call Accounts) (refer note 12) 


Loans and 
receivables 


44,284,189 

304,658,747 


Held to 
maturity 
investments 

37,894,650 


Available-for- 

sale 

348,920 

30,212,629 


Total 


38,243,570 

44,284,189 

304,658,747 

30,212,629 


348,942,936 37,894,650 30,561,549 417,399,135 


2011 


Loans and 
receivables 

Other financial assets (Investment) (refer note 6) 

Other receivables from exchange transcations(refer note 1 0) 26,043,224 

Consumer Debtors (refer note 1 1 ) 293,846,200 

Money market Account(Call Account) (refer note 12) 


Held to Available-for- 
maturity sale 

investments 

35,699,209 268,986 


22,863,563 


Total 


35,968,195 

26,043,224 

293,846,200 

22,863,563 


319,889,424 35,699,209 23,132,549 378,721,182 


8. Employee benefit obligations 
Retirement funds 


56 









Mogale City Local Municipality 

(Registration number GT 481) 

Trading as Mogale City Local Municipality 

Annual Financial Statements for the year ended 30 June 2012 

Notes to the Annual Financial Statements 

Figures in Rand 2012 2011 


8. Employee benefit obligations (continued) 

An actuarial valuation has been performed of the liability in respect of post-employment health care benefits to employees 
and retirees of Mogale City Local Municipality and to their registered dependants as at 30 June 2012. An independent 
valuator which is ARCFI ACTURIAL CONSULTING was appointed by the municipality to do all the calculation. The 
Company is practicing according to the conditions and requirements of Acturial Society of South Africa. 

The municipality provides retirement for its employees and councillors. The municipality contributes to defined contribution 
and defined benefit funds. 

The actuarial valuation determined that the retirement plan was in a sound financial position, however that it was 
recommended that the contribution should be increased by 6% for 12 months. This recommendation is presently being 
implemented. 

The plan is a final salary pension / flat plan or a post employment medical benefit plan. 

Defined Contribution Funds 

Where an employee has rendered services to the municipality during the year, the municipality recognises the contribution 
in exchange for the service immediately as an expense. 

Defined Benefit Plan 

The municipality offers employees and continuation members the opportunity of belonging to one of several medical aid 
schemes most of which offer a range of options pertaining to the levels of cover. Upon retirement a retired employee may 
continue membership of the medical scheme. Upon a member's death-in-service or death -on-retirement the surviving 
dependants may continue membership of the scheme in-service members will, and continuation members do receive a post 
retirement subsidy of 60% of the contribution payable, subject to a limit of R 3,440.51 per month for 2012/2013 

The defined benefit funds which are run by an independent administrator are actuarially valued on the basis of the projected 
unit credit method. 

Post retirement medical benefit 

The municipality provides post retirement medical benefit to ex-employees. These benefits are charged to the Statement of 
Financial Performance in the year of payment. The expected cost of these are accrued over the period of employment. 
Independent actuaries carry out these valuations. 

The municipality offered employees and continuation member's the opportunity of belonging to one several medical aid 
schemes, most of which offer range of options pertaining to the level of cover. Upon retirement an employee may continue 
memebership of the medical aid scheme and upon a member's death-in cover or death in retirement, the surviving 
dependent may continue membership of the scheme. 

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

Carrying value 


Present value of the defined benefit obligation-wholly unfunded 

(102,917,753) 

(92,943,084) 

Non-current liabilities 

Current liabilities 

(95,088,897) 

(7,828,856) 

(85,241,263) 

(7,701,821) 


(102,917,753) 

(92,943,084) 

Changes in the present value of the defined benefit obligation are as follows: 



Opening balance 

Net expense recognised in the statement of financial performance 

92,943,084 

9,974,669 

81,105,305 

11,837,779 

Closing balance 

102,917,753 

92,943,084 


57 










Mogale City Local Municipality 

(Registration number GT 481) 

Trading as Mogale City Local Municipality 

Annual Financial Statements for the year ended 30 June 2012 

Notes to the Annual Financial Statements 

Figures in Rand 2012 2011 


8. Employee benefit obligations (continued) 

Net expense recognised in the statement of financial performance 


Current service cost 
Contributon paid(Benefits paid) 
Interest cost 
Actuarial losses 


3,553,829 

(3,701,688) 

7,849,683 

2,272,845 


3,172,675 

(3,531,948) 

7,314,737 

4,882,315 


Total included in employee related costs 


9,974,669 11,837,779 


Key assumptions used 

Key finacial assumptions used at the reporting date: 


Discount rates used 

7.78 % 

8.61 % 

Flealth care cost inflation rate 

6.99 % 

7.32 % 

net effective discount rate 

0.74 % 

1.21 % 


58 








Mogale City Local Municipality 

(Registration number GT 481) 

Trading as Mogale City Local Municipality 

Annual Financial Statements for the year ended 30 June 2012 

Notes to the Annual Financial Statements 



Figures in Rand 

2012 

2011 


8. Employee benefit obligations (continued) 

The next contribution rate increases is assumed to occur at 1 January 2013 


Key demographic assumptions 

Assumption 


Value 


Average retirement age 

Continuation of membership at retirement 

Proportion assumed married at retirement 

Proportion of eligible current non-member employees 
joining the scheme by reirement 

Mortality during employment 

Mortality post retirement 


65 for male; 60 for females 

90% 

90% 

40% 

SA 85-90 

PA90-1 

Withdrawal from service(sample annual rates) 

Age 

Females 

Males 


20 

24% 

16% 


30 

15% 

10% 


40 

6% 

6% 


50 

2% 

2% 

Sensitivity analysis 

>55 

0% 

0% 


the liability at the valuation date was recalculated to show the effect of: 

(i) A 1% increase and decrease in the assumed general salary inflation rate; 

(ii) A one year age reduction in the assumed rates of post-retirement mortality: 

(iii) A one year decrease in the assumed average retirement age; and 
(iii) A 50% reduction assumed withdrawal rates. 

Assumption 

Central assumption 
General salary inflation 

Average retirement age 

Withdrawal rates 


Eligible employee demographic statistics 

Summary of the eligible in services employees 



Female 

Male 

Total 

No. in service members 

256 

312 

568 

No. in service of non-members 

63 

91 

154 

Average Age 

41.2 

45.4 

43.6 

Average past services 

11.6 

15.0 

13.5 

Average No. of dependants for inservices members 

1.6 

1.8 

1.7 


Eligible in-service non-members were assumed to be on SAMWUMED option B should they be on a medical aid scheme at 
retirement. 

Details of continuation membership 

Number of principal numbers 
Average age of members 
Average no. of dependants 
Average employee contribution 

Subsidy policy 

In-service members are entitled to receive a post-employment subsidy of 60% of the contribution payable, subject to a limit 
of R 3,440.51 per month (applicable for the 2012/2013 financial year) and provided they have at least ten years of service at 
retirement. Current continuation members all receive a 60% subsidy and are subject to the same limit described above. 
Widow(er)s and orphans of eligible in-service members are entitled to receive this same subsidy for ten years after the 


Female 

32 

71.9 

0.2 

R 2,105 


Male 

95 

72.8 

0.5 

R 2,681 


Total 

127 

72.6 

0.4 

R 2,536 


Change 

Liability 

41.582 

%change 

+1% 

44.365 

7% 

-1% 

39.061 

-6% 

-2 yrs 

36.891 

11% 

+2yrs 

45.759 

10% 

-50% 

48.318 

16% 


59 






Mogale City Local Municipality 

(Registration number GT 481) 

Trading as Mogale City Local Municipality 

Annual Financial Statements for the year ended 30 June 2012 

Notes to the Annual Financial Statements 

Figures in Rand 2012 2011 


8. Employee benefit obligations (continued) 

death in-service of an employee. 

Upon a member’s death-in-retirement, the surviving dependants will continue to receive the same 60% subsidy for life. 

It was not possible to determine from the data which of the continuation members were dependants of deceased in-service 
members and who were retirees. Flowever, there was only one continuation member who was indicated to be a widow, and 
it was assumed that for this continuation member, the benefit would be received until death. 

The effect of health care cost inflation rate is as follows: 

This assumption is required to reflect estimated future changes in the cost of medical services, resulting from both inflation 
and specific changes in medical costs (for example, due to technological advances or changes in utilisation patterns). Any 
assumption regarding future medical scheme contribution increases is therefore subjectivet. A health care cost inflation rate 
of 6.99% has been assumed. This is 1.75% in excess of expected CPI inflation over the expected term of the liability, 
namely 5.24%. A larger differential would be unsustainable, eventually forcing members to less expensive options. This 
implies a net discount rate of 0.74% which derives from (7.78%-6.99%)/1 .0699. 

The expected inflation assumption of 5.24% was obtained from the differential between market yields on index-linked bonds 
consistent with the estimated term of the liabilities (1 .94%) and those of nominal bonds (7.78%) with a risk premium 
adjustment for the uncertainty implicit in guaranteeing real increases (0.50%). This was therefore determined as follows: 
(7.78%-0.50%-1 .94%)/1 .0194. The next contribution increase was assumed to occur with effect from 1 January 2013. 

Replacement ratio: This is the expected pension as a percentage of final salary, at retirement. This assumption is required 
to determine the income band at retirement of members since some contribution rate tables are income-dependent. A 
replacement ratio of 65% was assumed. Income bands are assumed to increase with general salary inflation and therefore 
an explicit salary inflation assumption is not necessary. 

9. Inventories 


Consumable stores 

10,225,055 

13,755,893 

Water 

359,966 

435,314 

Unsold Properties Field for Resale 

513,000 

513,000 

Substores 

1,390,125 

3,949,914 


12,488,146 

18,654,121 

Inventories (Obsolete write-downs) 

(445,292) 

(1,561,913) 


12,042,854 

17,092,208 

The events leading to the obsolete stock is because of the items 

not being used and they became redundant . 


10. Other receivables from exchange transactions 



Bulk services 

14,010,291 

14,010,291 

Indigent parked amounts 

22,650,706 

22,741,894 

Flousing 

13,080,643 

12,990,823 

Staff loans 

4,553,402 

4,218,292 

Debtors staff leave 

1,034,616 

451,972 

Other receivables 

56,553,430 

29,068,868 

Impairment of other debtors 

(67,598,900) 

(57,438,916) 


44,284,188 

26,043,224 


Credit quality of other receivables from exchange transactions 

The credit quality of other receivables from non-exchange transactions that are neither past due nor impaired, can be 
assessed by reference to external credit ratings (if available) or to historical information about counterparty default rates. 


60 











Mogale City Local Municipality 

(Registration number GT 481) 

Trading as Mogale City Local Municipality 

Annual Financial Statements for the year ended 30 June 2012 

Notes to the Annual Financial Statements 

Figures in Rand 2012 2011 


10. Other receivables from exchange transactions (continued) 

Other receivables from exchange transactions past due but not impaired 

Other receivables from non-exchange transactions which are less than 3 months past due are not considered to be 
impaired. At 30 June 2012, R 19,496,344 (2011: R 10,504,115) were past due but not impaired. 

The ageing of amounts past due but not impaired is as follows: 

1 month past due 

2 months past due 

3 months past due 
Total 

Other receivables from exchange transactions impaired 

As of 30 June 2012, other receivables from non-exchange transactions of R 1 1 1,883,088 (2011: R86,507,784) were 
impaired and provided for. 

The amount of the provision was R 67,598,900 as of 30 June 2012 (2011: R 57,438,916). 

The ageing of these other debtors is as follows: 


10,818,005 9,899,966 

333,177 304,303 

8,345,162 299,847 

19,496,344 10,504,115 


3 to 6 months 

11,164,497 

10,500,823 

Over 6 months 

100,718,591 

76,006,961 

Reconciliation of provision for impairment of other receivables from exchange transactions 


Opening balance 

57,438,916 

54,857,323 

Provision for impairment 

10,159,984 

2,581,593 


67,598,900 

57,438,916 

11. Consumer debtors 



Gross balances 



Rates 

211,066,743 

206,223,298 

Electricity 

104,223,615 

86,692,792 

Water 

123,693,428 

117,997,113 

Sewerage 

99,910,761 

91,069,632 

Refuse 

149,496,976 

140,820,065 

Other 

169,235,417 

160,328,894 

Credit Balances transferred to creditors 

39,907,260 

31,597,415 


897,534,200 

834,729,209 

Less: Provision for debt impairment 



Rates 

(179,531,217) 

(148,649,360) 

Electricity 

(26,504,821) 

(19,117,558) 

Water 

(96,005,167) 

(91,289,734) 

Sewerage 

(77,895,923) 

(74,555,830) 

Refuse 

(125,716,671) 

(124,922,263) 

Other 

(87,221,655) 

(82,348,264) 


(592,875,454) 

(540,883,009) 

Net balance 



Rates 

31,535,526 

57,573,938 

Electricity 

77,718,794 

67,575,234 


61 











Mogale City Local Municipality 

(Registration number GT 481) 

Trading as Mogale City Local Municipality 

Annual Financial Statements for the year ended 30 June 2012 


Notes to the Annual Financial Statements 


Figures in Rand 

2012 

2011 

11. Consumer debtors (continued) 

Water 

27,688,261 

26,707,379 

Sewerage 

22,014,838 

16,513,802 

Refuse 

23,780,305 

15,897,802 

Other 

82,013,762 

77,980,630 

Credit Balances transferred to creditors 

39,907,260 

31,597,415 


304,658,746 

293,846,200 

Rates 

Current (0 -30 days) 

76,666,370 

71,866,152 

31 - 60 days 

5,932,292 

4,455,640 

61 - 90 days 

3,360,493 

3,580,352 

91 - 120 days 

125,107,588 

126,321,154 


211,066,743 

206,223,298 

Electricity 

Current (0 -30 days) 

69,516,643 

58,364,439 

31 - 60 days 

6,834,184 

8,096,061 

61 - 90 days 

2,859,223 

1,653,065 

91 - 120 days 

25,013,565 

18,579,227 


104,223,615 

86,692,792 

Water 

Current (0 -30 days) 

21,449,201 

20,461,891 

31 - 60 days 

6,920,457 

6,352,166 

61 - 90 days 

3,931,042 

2,434,004 

91 - 120 days 

91,392,728 

88,749,052 


123,693,428 

117,997,113 

Sewerage 

Current (0 -30 days) 

25,051,554 

11,430,018 

31 - 60 days 

2,901,103 

4,049,283 

61 - 90 days 

1,035,159 

1,901,275 

91 - 120 days 

70,922,945 

73,689,056 


99,910,761 

91,069,632 

Refuse 

Current (0 -30 days) 

25,856,995 

10,817,883 

31 - 60 days 

2,271,025 

3,396,767 

61 - 90 days 

1,416,676 

2,223,218 

91 - 120 days 

119,952,280 

124,382,197 


149,496,976 

140,820,065 

Credit Balances transferred to creditors 

Current (0 -30 days) 

5,005,444 

5,134,145 

31 - 60 days 

1,955,435 

3,095,460 

61 - 90 days 

1,111,601 

1,054,243 

91 - 120 days 

31,834,780 

22,313,567 


39,907,260 

31,597,415 

Other 

Current (0 -30 days) 

50,917,783 

29,596,329 

31 - 60 days 

25,616,527 

5,887,267 


62 

















Mogale City Local Municipality 

(Registration number GT 481) 

Trading as Mogale City Local Municipality 

Annual Financial Statements for the year ended 30 June 2012 


Notes to the Annual Financial Statements 


Figures in Rand 

2012 

2011 

11. Consumer debtors (continued) 

61 - 90 days 

91 - 120 days 

22,514,815 

70,184,152 

4,079,866 

120,765,432 


169,233,277 

160,328,894 

Reconciliation of debt impairment provision of all debtors including other 
receivables from exchange transcations and Non current receivables 

Balance at beginning of the year 

Contributions to provision 

Debt impairment written off against provision 

601,508,953 

82,208,112 

(20,664,873) 

567,670,793 

48,032,071 

(14,193,911) 


663,052,192 601,508,953 


Credit quality of consumer debtors 

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

Consumer debtors past due but not impaired 

Consumer debtors which are less than 3 months past due are not considered to be impaired. At 30 June 2012, R 
224,334,091 (201 1 : R 216,378,737 ) were past due but not impaired. 

The ageing of amounts past due but not impaired is as follows: 


1 month past due 

211,678,691 

172,051,993 

2 months past due 

6,786,214 

25,004,288 

3 months past due 

5,869,186 

19,322,456 

Consumer debtors impaired 



As of 30 June 2012, consumer debtors of R 897,532,060 (201 1 : R 834,729,209) were impaired and provided for. 


The amount of the provision was R 592,875,454 as of 30 June 2012 (2011: R 540,883,009). 



The ageing of these debtors are as follows: 



Over 6 months 

592,875,454 

540,883,009 

Reconciliation of provision for impairment of consumer debtors 



Opening balance 

540,883,009 

509,424,711 

Provision for impairment 

72,048,127 

45,450,479 

Amounts written off as uncollectible 

(20,055,682) 

(13,992,181) 


592,875,454 

540,883,009 

Receivables from non-exchange transactions included in Consumer debtors 

Rates 

31,535,526 

57,573,938 

Receivables from exchange transactions included in Consumer debtors 

Electricity 

77,718,794 

67,575,234 

Water 

27,688,261 

26,707,379 

Sewerage 

22,014,838 

16,513,802 

Refuse 

23,780,305 

15,897,802 

Other 

82,013,762 

77,980,630 


233,215,960 

204,674,847 



63 












Mogale City Local Municipality 

(Registration number GT 481) 

Trading as Mogale City Local Municipality 

Annual Financial Statements for the year ended 30 June 2012 

Notes to the Annual Financial Statements 

Figures in Rand 2012 2011 


12. Cash and cash equivalents 

Cash and cash equivalents consist of: 


Cash on hand 

Bank balances 

Call accounts money market accounts 

Bank overdraft 

28,667 

13,533,992 

30,212,629 

25,226 

17,017,475 

22,863,563 

(570,602) 


43,775,288 

39,335,662 

Current assets 

43,775,288 

39,906,264 

Current liabilities 

- 

(570,602) 


43,775,288 

39,335,662 


Credit quality of cash at bank and short term deposits, excluding cash on hand 

The credit quality of cash at bank and short term deposits, excluding cash on hand that are neither past due nor impaired 
can be assessed by reference to external credit ratings (if available) or historical information about counterparty default 
rates. 

Cash and cash equivalents pledged as collateral 

Total financial assets pledged as collateral [ This collateral are held by Eskom 500,000 361 ,800 

Floldings Limited and South African Post Office ] 


64 










Mogale City Local Municipality 

(Registration number GT 481) 

Trading as Mogale City Local Municipality 

Annual Financial Statements for the year ended 30 June 2012 

Notes to the Annual Financial Statements 

Figures in Rand 2012 2011 


12. Cash and cash equivalents (continued) 

2012 

Gurantee no. G0657/396345/GLO: First Rand Bank Limited has been binded as 
gurantor to South African Post Office for payments of all amounts due and payable, or 
which may become due and payable by the municipality in respect of bulk postings 
provided that the total amount to be recovered under this payment Guarantee shall not 
exceed in agregate the sum of R 500,000 

2011 

Gurantee no. G0657/350385/GLO: First Rand Bank Limited has been binded as 
gurantor to Eskom Floldings Limited for the due payments of all amounts due and 
payable, or which may become due and payable by the municipality to eskom in terms 
of the eletricity supply agreement entered into between Eskom and the customer for 
the supply of electricity to porion 39, Kagiso (Waterboard) provided that the total 
amount to be recovered from Guarantor shall not exceed the sum of R 21 ,800. 

Gurantee no. G0657/350386/GLO: First Rand Bank Limited has been binded as 
gurantor to Eskom Floldings Limited for the due payments of all amounts due and 
payable, or which may become due and payable by the municipality to eskom in terms 
of the eletricity supply agreement entered into between Eskom and the customer for 
the supply of electricity to porion 96, Kagiso (Flostel 1, Transfomer 1) provided that the 
total amount to be recovered from Guarantor shall not exceed the sum of R 43,100. 

Gurantee no. G0657/350387/GLO: First Rand Bank Limited has been binded as 
gurantor to Eskom Floldings Limited for the due payments of all amounts due and 
payable, or which may become due and payable by the municipality to eskom in terms 
of the eletricity supply agreement entered into between Eskom and the customer for 
the supply of electricity to porion 96, Kagiso (Flostel 1 , Transformer 2) provided that the 
total amount to be recovered from Guarantor shall not exceed the sum of R 43,100. 

Gurantee no. G0657/350391/GLO: First Rand Bank Limited has been binded as 
gurantor to Eskom Floldings Limited for the due payments of all amounts due and 
payable, or which may become due and payable by the municipality to eskom in terms 
of the eletricity supply agreement entered into between Eskom and the customer for 
the supply of electricity to porion 96, Kagiso (Flostel 1, Transformer 3) provided that the 
total amount to be recovered from Guarantor shall not exceed the sum of R 53,800. 

Gurantee no. G0657/396345/GLO: First Rand Bank Limited has been binded as 
gurantor to South African Post Office for payments of all amounts due and payable, or 
which may become due and payable by the municipality in respect of bulk postings 
provided that the total amount to be recovered under this payment Guarantee shall not 
exceed in agregate the sum of R 200,000 


Total financial assets pledged as collateral for contingent liabilities 


500,000 361,800 


The municipality had the following bank accounts 


Account number / description 

First National Bank - Corporate 
Services Account - 6204-542- 
3491 

First National Bank - Corporate 
Services Account - 6204-542- 
2469 


Bank statement balances Cash book balances 

30 June 2012 30 June 2011 30 June 2010 30 June 2012 30 June 2011 30 June 2010 

(2,215) - - (2,215) 


100,000 - - 100,000 


65 






Mogale City Local Municipality 

(Registration number GT 481) 

Trading as Mogale City Local Municipality 

Annual Financial Statements for the year ended 30 June 2012 

Notes to the Annual Financial Statements 

Figures in Rand 2012 2011 


12. Cash and cash equivalents (continued) 


First National Bank- Coporate 
Services Account - 6204-523- 

- 

6,721,924 

- 

6,721,924 

- 

1074 

First National Bank - Coporate 
Services Account - 6208-172- 
0114 

- 

50,000 

- 

50,000 

- 

First National Bank- Corporate 
Services Account-6212-767- 
4358 


(205) 


(205) 


First National Bank-Corporate 
Services Account-Social 

- 

(205) 

- 

(205) 

- 

reponsibility 

First National Bank-Corporate 
Service Account-6228-265-1621 

- 

116,024 

- 

116,024 

- 

Standard Bank- 021307482 

582,820 

90,425 

582,820 

90,425 

- 

Standard Bank-021307474 

72,671 

1,084,935 

72,671 

1,084,935 

- 

Cheque Accounts 

Standard Bank- 021307385 

36,083 

515,805 

36,083 

515,805 


Cheque Accounts 

Standard Bank- 021307172 

900,965 

1,284,594 

900,965 

1,284,594 


Cheque Accounts 

Standard Bank- 021307105 

9,055,603 

(567,977) 

9,055,603 

(567,977) 


Cheque Accounts 

Standard Bank-021306958 

71,443 

3,079,783 

71,443 

3,079,783 


Cheque Accounts 

Standard Bank-021306532 

2,814,406 

3,973,804 

2,814,406 

3,973,804 


Cheque Accounts 

Call Account 

30,212,629 

22,863,564 

30,212,629 

22,863,564 


Petty Cash 

28,668 

25,226 

28,668 

25,226 

- 

Absa 40-6870-7232 

- 

180 

- 

180 

- 

Total 

43,775,288 

39,335,662 

43,775,288 

39,335,662 

- 

13. Non-current receivables 






Sundry loans 




2,241,803 

2,706,945 

Receivables credit balances transferred(creditors) 



1,343 

- 

Stand and housing loans capital 




334,692 

480,084 

Impairment receivables 




(2,577,838) 

(3,187,029) 





- 

- 


Credit quality of trade and other receivables 

The credit quality of trade and other receivables 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: 

Non-current receivables impaired 

As of 30 June 2012, trade and other receivables of R 2,577,838 (201 1 : R 3,187,029) were impaired and provided for. 

The amount of the provision was R 2,577,838 as of 30 June 2012 (2011: R3, 187,029 ). 

The ageing of these loans is as follows: 

Over 6 months 2,577,838 3,187,029 

Reconciliation of provision for impairment of non-current receivables 


66 









Mogale City Local Municipality 

(Registration number GT 481) 

Trading as Mogale City Local Municipality 

Annual Financial Statements for the year ended 30 June 2012 


Notes to the Annual Financial Statements 


Figures in Rand 

2012 

2011 

13. Non-current receivables (continued) 

Opening balance 

3,187,029 

3,388,759 

Rervesal of provision(Written off as uncollectable) 

(609,191) 

(201,730) 


2,577,838 

3,187,029 

14. Finance lease obligation 



Minimum lease payments due 

- within one year 

15,658,558 

8,047,080 

- in second to fifth year inclusive 

14,164,246 

13,300,489 

- later than five years 

2,424,087 

2,489,198 


32,246,891 

23,836,767 

less: future finance charges 

(11,010,277) 

(9,496,569) 

Present value of minimum lease payments 

21,236,614 

14,340,198 

Present value of minimum lease payments due 

- within one year 

9,139,559 

3,847,688 

- in second to fifth year inclusive 

11,308,824 

9,742,772 

- later than five years 

788,231 

749,738 


21,236,614 

14,340,198 

Non-current liabilities 

12,020,871 

10,492,509 

Current liabilities 

9,215,743 

3,847,688 


21,236,614 

14,340,197 


It is municipality policy to lease certain property, motor vehicles and equipment under finance leases. 

The average lease term is 36 months. 

Interest rates are either fixed or variable. Some leases have fixed repayment terms and others escalate on a fixed rate and 
some fluctuate with prime lending rate. 

15. Unspent conditional grants and receipts 

Unspent conditional grants and receipts comprises of: 


Unspent conditional grants and receipts 


Department of Flousing 

2,295,011 

2,295,010 

SRAC grant 

800,317 

548,613 

DWAF grant 

1,531,290 

2,428,642 

GDSD grants 

1,172,407 

3,332,784 

WRDM grants 

3,524,235 

1,396,683 

BKB grants 

571,534 

285,956 

Expanded public works programme 

893,123 

124,000 

Seta training grants 

886,184 

25,858 

GPR-DLG:ALOE CAP 

2,200,000 

- 



13,874,101 

10,437,546 

Movement during the year 



Balance at the beginning of the year 

10,437,547 

12,133,569 

Additions during the year 

302,000,915 

260,984,447 

Income recognition during the year 

(298,564,361) 

(262,680,470) 



67 

















Mogale City Local Municipality 

(Registration number GT 481) 

Trading as Mogale City Local Municipality 

Annual Financial Statements for the year ended 30 June 2012 


Notes to the Annual Financial Statements 


Figures in Rand 

2012 

2011 

15. Unspent conditional grants and receipts (continued) 

13,874,101 

10,437,546 


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

Unfulfilled conditions and other contingencies attaching to government assistance that has been recognised. 

See note for reconciliation of grants from National/Provincial Government. 

These amounts are invested in a ring-fenced investment until utilised. 


68 







Mogale City Local Municipality 

(Registration number GT 481) 

Trading as Mogale City Local Municipality 

Annual Financial Statements for the year ended 30 June 2012 


Notes to the Annual Financial Statements 


Figures in Rand 




2012 

2011 

16. Provisions 






Reconciliation of provisions - 2012 

Opening 

Additions 

Utilised 

Change in 

Total 


Balance 


during the 

discount 





year 

factor 


Landfill site rehabilitation 

14,682,580 

- 

- 

(439,826) 

14,242,754 

Gratuity Provision 

1,615,442 

- 

(219,353) 

- 

1,396,089 

Corporate and social responsibility 

1,390,374 

2,203,473 

- 

- 

3,593,847 

Collateral guarantee insurance 

346,107 

- 

(77) 

- 

346,030 

Long services awards & Workmans 
compensation 

40,388,923 

6,607,796 

“ 

“ 

46,996,719 


58,423,426 

8,811,269 

(219,430) 

(439,826) 

66,575,439 

Reconciliation of provisions - 2011 






Opening 

Additions 

Utilised 

Change in 

Reduction 

Total 

Balance 


during the 

discount 

due to re- 




year 

factor 

measurement 
or settlement 
without cost 






to entity 


Landfill site rehabilitation 13,347,800 

- 

- 

- 

1,334,780 

14,682,580 

Gratuity provision 1,646,656 

- 

(31,214) 

- 

- 

1,615,442 

Corporate and social 278,264 

responsibility 

1,301,610 

(189,500) 

- 

" 

1,390,374 

Collateral guarantee 334,892 

11,215 

- 

- 

- 

346,107 

insurance 






Longservices awards & 36,299,868 

Workmans compensation 

11,605,824 

“ 

(7,516,769) 

“ 

40,388,923 

51,907,480 

12,918,649 

(220,714) 

(7,516,769) 

1,334,780 

58,423,426 

Non-current liabilities 




52,428,724 

46,793,432 

Current liabilities 




14,146,715 

11,629,994 





66,575,439 

58,423,426 


69 











Mogale City Local Municipality 

(Registration number GT 481) 

Trading as Mogale City Local Municipality 

Annual Financial Statements for the year ended 30 June 2012 

Notes to the Annual Financial Statements 

Figures in Rand 2012 2011 


16. Provisions (continued) 


a. Corporate Social Responsiblity Funds 

The fund was established in terms of executive resolution by the Mayor in terms of which service providers and suppliers 
who reside outside of Mogale City Local Municipality boundries are expected to contribute 1% out of all amounts that 
accrue when they tender the municipality 

b. Gratuity Provision 

The fund was established in terms of an executive resolution 30/06/86. The policy to non whites stipulated that any worker 
over 65yrs and has worked for the municipality for a period of 10 years and did not recieve any pension compensation upon 
retirement. Gratuity has been paid at a 1/12 of the monthly salary for every completed years of service. 

c. Leave and Bonus accrual 

The liability is based on the total accrued leave days and accrued bonus paid. 

d. Landfill Rehabilitation Provision 

In terms of GRAP19 evaluations of provision should be done on an annual basis to reflect the best estimate at that date of 
provision. 

e. Collateral Gaurantee Insurance 

MCLM has housing guarantees with the bank on behalf of its employees. These employees contribute on a monthly basis 
to cover for the municipality possible losses. 

f. Long Service Awards Provision 
Summary of elegible employees 

Summary of employees who are elegible for LSA as at June 2012 

Number of employees 
Average annual salary 
Salary weighted average 
Salary weighted average past services 

Long services leave arrangements 

The municipality offers employees LSA for every five years completed, from ten years of services onwards 


Female Male Total 

567 1,018 1,585 

248,488 226,466 234,344 

41.4 46.2 13.4 

10.3 15.3 13.4 


Long service awards for levels of past services 

Completed in service(in YRS) Long service bonus(% annual package) 


10 6.4% 

15 8.0% 

20,25,30,35,40,45 12.0% 


Description 

16/250* annual package 
20/250* annual package 
30/250* annual package 


Key financial assumptions 

The municipality offers various types of long service awards to its employees and the key acturial financial assumptions are 
as follows 

• Discount rate 6.38% (2011: 7.71 %) 


70 






Mogale City Local Municipality 

(Registration number GT 481) 

Trading as Mogale City Local Municipality 

Annual Financial Statements for the year ended 30 June 2012 

Notes to the Annual Financial Statements 

Figures in Rand 2012 2011 


16. Provisions (continued) 

• General salary inflation 5.97% (201 1 : 6.25%) 

Net effective discount rate 0.38% (201 1 : 1 .38 %) 

The salaries used in the valuation include an assumed increase of 6.5% in July 2012. The next salary increase is 
assumed to take place in July 2013. 

Key demographic Assumptions 

Assumption Value 


Average retirement age 

65 for males;60 for females 


Mortality during employement 

SA85-90 


Withdrawal from service (sample annual rates) 

Age 

Rate 




Female 

Male 


20 

24% 

16% 


30 

15% 

10% 


40 

6% 

6% 


50 

2% 

2% 


55 

0% 

0% 

Sensitivity analysis 




the liability at the valuation date was recalculated to show the effect of: 

(i) A 1% increase and decrease in the assumed general salary inflation rate; 



(ii) A two year decrease and increase in the assumed average retirement age of employees 


(iii) A 50% decrease in the assumed withdrawal rates from services 



Assumption 

Change 

Liability 

%change 

Central assumption 


41.582 


General salary inflation 

+1% 

44.365 

7% 


-1% 

39.061 

-6% 

Average retirement age 

-2 yrs 

36.891 

-11% 


+2yrs 

45.759 

10% 

Withdrawal rates 

-50% 

48.318 

16% 


17. Trade and other payables from exchange transactions 


Trade payables 

193,717,603 

175,131,659 

Credit balance from other debtors 

1,876,672 

1,200,152 

Current lease liability 

- 

280,197 

Other payables 

3,724,713 

6,322,500 

Salary third payments 

588,304 

395,886 

Unpresented cheques 

15,524,200 

15,060,340 

Creditors fair value adjustments 

(1,454,498) 

(1,345,929) 

Consumer debtors credit balances 

39,907,260 

31,597,415 

Receivables credit balances 

1,343 

1,067 

Inventory in transit 

131,107 

131,483 

Insurance claims 

- 

281,297 

Unallocated cash 

964,156 

964,861 

Undistributed deposit 

15,546,004 

6,765,248 

Retention 

17,895,298 

10,648,281 

Overtime Accrual 

1,238,166 

1,881,175 

Leave accrual 

36,392,601 

34,908,962 

Bonus accrual 

15,850,259 

13,655,972 


341,903,188 

297,880,566 


It is anticipated that the amounts owing to trade and other payables will be settled within the next 12 months. 

18. Other financial liabilities 
Held at amortised cost 


71 








Mogale City Local Municipality 

(Registration number GT 481) 

Trading as Mogale City Local Municipality 

Annual Financial Statements for the year ended 30 June 2012 


Notes to the Annual Financial Statements 


Figures in Rand 

2012 

2011 

18. Other financial liabilities (continued) 

Bank loan( Non Current) 

Bank loan( Current) 

177,131,998 

17,961,031 

194,539,357 

11,158,838 


195,093,029 

205,698,195 

Loans: The loans bear interests between 10% and 16.2% per annum and repayable over a period between 1 yr and 20 yrs. 

Non-current liabilities 

At amortised cost 

177,131,998 

194,539,357 

Current liabilities 

At amortised cost 

17,961,031 

11,158,838 


195,093,029 

205,698,195 

19. Sundry deposits 



Services deposits 

8,551,654 

7,593,896 


Sundry deposits consists of hall, kerb, builder's water and key deposits. 

20. VAT payable (SARS) 

VAT payables 68,632,136 63,845,298 


VAT is payable on the receipt basis and is only paid over to SARS only once payment is received from debtors 

21. Consumer deposits 

Electricity and water 35,997,439 33,294,313 


The above deposist represent Electricity & Water deposists as the current tariff structure do not permit individual deposit 
verification 

22. Financial liabilities by category 

The accounting policies for financial instruments have been applied to the line items below: The liabilities are disclosed and 
presented at amortised costs however the value equals the fair value measurements 

2012 


VAT payable(refer note 20) 

Other current financial liabilities( refer note 18) 

Trade and other payables(refer note 17) 

Other non current financial liabilities(refer note18) 
Consumer deposits(refer note 21 ) 

Sundry deposits(refer note 19) 

Unspent conditional grants and receipts(refer note 15) 


Financial 
liabilities at 
amortised 
cost 

68,670,528 

17,961,031 

341,907,241 

177,131,998 

35,997,439 

8,551,654 

13,874,101 


Total 


68,670,528 

17,961,031 

341,907,241 

177,131,998 

35,997,439 

8,551,654 

13,874,101 


664,093,992 664,093,992 


2011 


72 
















Mogale City Local Municipality 

(Registration number GT 481) 

Trading as Mogale City Local Municipality 

Annual Financial Statements for the year ended 30 June 2012 


Notes to the Annual Financial Statements 


Figures in Rand 

2012 

2011 

22. Financial liabilities by category (continued) 




Financial 

Total 


liabilities at 



amortised 



cost 


Bank overdraft(refer note 12) 

570,602 

570,602 

VAT payable(refer note 20) 

63,845,298 

63,845,298 

Other current financial liabilities(refer note 18) 

11,158,838 

11,158,838 

Trade and other payables(refer note17) 

297,880,562 

297,880,562 

Other non current financial liabilities(refer note 18) 

194,166,746 

194,166,746 

Consumer deposits(refer note 21 ) 

33,294,313 

33,294,313 

Sundry deposits(refer note 19) 

63,845,298 

63,845,298 

Unspent conditional grants and receipts (refer note 15) 

11,629,994 

11,629,994 


676,391,651 

676,391,651 

23. Revenue 



Property rates 

247,752,947 

217,375,414 

Property rates - Penalties imposed and collection charges 

11,724,620 

12,225,618 

Service charges 

951,363,075 

790,204,861 

Rental of facilities & equipment 

3,148,630 

7,738,915 

Interest received - trading 

10,202,152 

7,547,349 

Income from agency services 

19,075,486 

15,926,124 

Fines 

11,035,560 

13,159,396 

Licences and permits 

23,129 

30,891 

Government grants & subsidies 

298,564,361 

262,680,470 

Other income 

210,871,368 

86,791,384 


1,763,761,328 

1,413,680,422 

The amount included in revenue arising from exchanges of goods or services 



are as follows: 



Service charges 

951,363,075 

790,204,861 

Rental of facilities & equipment 

3,148,630 

7,738,915 

Interest received - trading 

10,202,152 

7,547,349 

Income from agency services 

19,075,486 

15,926,124 

Licences and permits 

23,129 

30,891 

Other income 

210,871,368 

86,791,384 


1,194,683,840 

908,239,524 

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



follows: 



Taxation revenue 



Property rates 

247,752,947 

217,375,414 

Property rates - Penalties imposed and collection charges 

11,724,620 

12,225,618 

Fines 

11,035,560 

13,159,396 

Transfer revenue 



Levies 

298,564,361 

262,680,470 


569,077,488 

505,440,898 


73 













Mogale City Local Municipality 

(Registration number GT 481) 

Trading as Mogale City Local Municipality 

Annual Financial Statements for the year ended 30 June 2012 

Notes to the Annual Financial Statements 

Figures in Rand 2012 2011 


24. Property rates 
Rates received 


Residential 

Commercial 

Small holdings and farms 

Less: Income forgone 

261,088,051 

115,101,188 

16,433,532 

(144,869,824) 

225,262,507 

109,890,731 

13,181,394 

(130,959,218) 

Property rates - penalties imposed and collection charges 

247,752,947 

11,724,620 

217,375,414 

12,225,618 


259,477,567 

229,601,032 

25. Service charges 

Service charges 

20,990,204 

17,955,211 

Sale of electricity 

619,676,357 

506,842,585 

Sale of water 

148,393,005 

130,031,552 

Sewerage and sanitation charges 

85,741,066 

73,858,560 

Refuse removal 

76,556,264 

61,516,300 

Other service charges 

6,179 

653 










Mogale City Local Municipality 

(Registration number GT 481) 

Trading as Mogale City Local Municipality 

Annual Financial Statements for the year ended 30 June 2012 


Notes to the Annual Financial Statements 


Figures in Rand 

2012 

2011 

26. Government grants and subsidies 



Equitable share 

186,224,000 

173,321,138 

Provincial health subsidies 

- 

3,437,750 

MIG grant 

80,957,000 

55,095,326 

Financial management grant 

1,250,000 

1,000,000 

WRDM grant 

1,787,806 

3,127,284 

Bontle ke botho grant 

194,423 

49,320 

Seta training grant 

1,759,229 

1,552,215 

SRAC grant 

5,148,295 

4,942,335 

Municipal systems improvement grant (operating) 

800,000 

750,000 

GDSD grant 

17,160,378 

5,674,777 

GPR-HIV/AIDS grant 

- 

268,479 

DWAF 

2,897,353 

7,440,846 

DMEA grant 

- 

5,000,000 

Expanded public works programme 

385,877 

21,000 

Agriculture 

- 

1,000,000 


298,564,361 

262,680,470 

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 R 226.85 (201 1 : R -), which is funded from the grant. 


MIG grant 



Balance unspent at beginning of year 

- 

3,869,327 

Current-year receipts 

80,957,000 

51,225,999 

Conditions met - transferred to revenue 

(80,957,000) 

(55,095,326) 


- 

- 

Conditions still to be met - remain liabilities (see note 15) 



The grant is used for all infrastructure projects in Mogale City. 



Department of human settlement grant 



Balance unspent at beginning of year 

2,295,010 

2,295,010 

Conditions still to be met - remain liabilities (see note 15) 



This grant is administered on behalf of the department of human settlement for the erection of RDP houses. 


SRAC grant 



Balance unspent at beginning of year 

548,613 

1,190,948 

Current-year receipts 

5,399,999 

4,300,000 

Conditions met - transferred to revenue 

(5,148,295) 

(4,942,335) 


800,317 

548,613 

Conditions still to be met - remain liabilities (see note 15) 



The grant is utilised for the libraries and sports facilities around Mogale City. 



DWAF 




75 












Mogale City Local Municipality 

(Registration number GT 481) 

Trading as Mogale City Local Municipality 

Annual Financial Statements for the year ended 30 June 2012 

Notes to the Annual Financial Statements 

Figures in Rand 2012 2011 


26. Government grants and subsidies (continued) 


Balance unspent at beginning of year 

Current-year receipts 

Conditions met - transferred to revenue 


2,428,642 4,128,499 

2,000,001 5,740,989 

(2,897,353) (7,440,846) 

1,531,290 2,428,642 


Conditions still to be met - remain liabilities (see note 15) 


The grant is used to refurbish the water care works in Mogale City and demand water management strategy. 

GDSD grant 


Balance unspent at beginning of year 

Current-year receipts 

Conditions met - transferred to revenue 


3,332,784 7,561 

15,000,001 9,000,000 

(17,160,378) (5,674,777) 

1,172,407 3,332,784 


Conditions still to be met - remain liabilities (see note 15) 

The grant is used for the construction of the early childhood development. 

WRDM grant 


Balance unspent at beginning of year 

Current-year receipts 

Conditions met - transferred to revenue 


1,396,683 88,467 

3,915,358 4,435,500 

(1,787,806) (3,127,284) 

3,524,235 1,396,683 


Conditions still to be met - remain liabilities (see note 15) 

WRDM funds various activities in the municipality e.g. FIIV/AIDS, primary health care, programmes for the youth, elderly, 
disabled etc. 

Bontle ke botho grant 

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

571,534 285,956 


285,956 285,277 

480,001 49,999 

(194,423) (49,320) 


Conditions still to be met - remain liabilities (see note 15) 

Bontle ke botho is prize money received for the greater Krugersdorp town and various wards for environmental awareness 
and will be spent in the following year. 

GPR-HIV/AIDS grant 


Balance unspent at beginning of year 

Conditions met - transferred to revenue 

“ 

268,479 

(268,479) 


- 

- 

Conditions still to be met - remain liabilities (see note 15) 

The grant is used for all related matters pertaining to FIIV/AIDS projects. 




76 













Mogale City Local Municipality 

(Registration number GT 481) 

Trading as Mogale City Local Municipality 

Annual Financial Statements for the year ended 30 June 2012 


Notes to the Annual Financial Statements 


Figures in Rand 

2012 

2011 

26. Government grants and subsidies (continued) 

Expanded public works programme 

Balance unspent at beginning of year 

124,000 


Current-year receipts 

1,155,000 

145,000 

Conditions met - transferred to revenue 

(385,877) 

(21,000) 


893,123 

124,000 

Conditions still to be met - remain liabilities (see note 15) 

As per the national government initiative this grant is utilised for labour intensive program. 

Seta training grants 

Balance unspent at beginning of year 

25,858 


Current-year receipts 

2,619,555 

1,578,073 

Conditions met - transferred to revenue 

(1,759,229) 

(1,552,215) 


886,184 

25,858 

Conditions still to be met - remain liabilities (see note 15) 

The grant is utilised to enhance skills for all employees of the municipality. 

Department of local government: Aloe Cap 

Current-year receipts 

2,200,000 


Conditions still to be met - remain liabilities (see note 15) 

The grant will be utilised for revenue enhancement projects 

27. Rental of facilities and equipment 

Facilities and equipment 

Rental of facilities 

3,148,630 

7,738,915 

28. Investment revenue 

Dividend received 

Dividends 

12,688 

1 1 ,224 

Interest received- external investment 

Bank 

4,716,966 

4,518,061 

Total revenue from investments 

4,729,654 

4,529,285 





77 














Mogale City Local Municipality 

(Registration number GT 481) 

Trading as Mogale City Local Municipality 

Annual Financial Statements for the year ended 30 June 2012 


Notes to the Annual Financial Statements 


Figures in Rand 

2012 

2011 

29. Other income 



Administration fees 

384,005 

363,805 

Advertising 

362,012 

255,514 

Application fees 

371,195 

327,472 

Building plan fees 

1,857,190 

1,866,541 

Bulk service connections 

3,702,959 

4,613,984 

Cemetery fees 

1,717,677 

1,873,447 

Contributions roads, storm water pipes 

6,898,693 

1,671,692 

Insurance claims 

1,057,468 

549,872 

Medical aid contributions( Pensioners) 

1,366,212 

1,349,744 

Other income 

4,854,090 

3,552,061 

Sale of assets 

4,219,635 

(105,456) 

Services connections 

5,007,466 

5,232,293 

Unclaimed monies 

6,506 

6,080 

Investment property fair value adjustment 

- 

65,234,335 

Donation/ T ransfers of Assets 

156,749,088 

- 

Fair value shares 

79,934 

- 

Sale of assets non mogale 

22,237,238 

- 


210,871,368 

86,791,384 


other income increased as a result of the donations/ transfers of assets to the municipality and the treatment has been 
done according to GRAP 23: 

Transferers of Cradle of Humankind assets were as a result of demarcation of District Management Areas to Mogale City to 

the value of R 18,314,565 

Capital Spares to the value of R7, 732, 388 

Lanwen hostel donated to Mogale City to the value of R 36,852,981 

Krugersdorp Game Reserve buildings was transferred to Mogale City at a value of R 89,002,061. 

Buildings to the value of R 1, 000,000 was donated to Mogale City by the South African breweries. 

Biological assets transferred to Mogale City at a value of R3, 395, 876 

Krugersdorp Game Reserve moveable assets transferred to Mogale City at a value of R 190,217 
Krugersdorp Game Reserve animals PPE transferred to Mogale City at a value of R 261,000 

The future economic benefits or service potential will flow to Mogale City due to income derived from gate takings, rental of 
facilities for events and accomodation. 


78 








Mogale City Local Municipality 

(Registration number GT 481) 

Trading as Mogale City Local Municipality 

Annual Financial Statements for the year ended 30 June 2012 


Notes to the Annual Financial Statements 


Figures in Rand 

2012 

2011 

30. Employee related costs 



Basic 

252,744,439 

234,229,491 

Bonus 

19,316,159 

18,416,119 

Medical aid - company contributions 

13,435,464 

10,715,472 

UIF 

2,041,177 

1,971,577 

SDL 

80,573 

79,318 

Post-employment benefits - Pension - Defined contribution plan 

46,968,840 

43,361,950 

Overtime payments 

16,705,917 

22,883,619 

Long-service awards 

148,565 

216,761 

Acting allowances 

9,141 

59,463 

Car allowance 

33,365,752 

29,922,951 

Flousing benefits and allowances 

1,773,200 

1,699,210 

Section 57 Salaries 

10,478,276 

9,714,777 


397,067,503 

373,270,708 

Remuneration of municipal manager(Mashitisho D.M) 



Annual Remuneration 

1,433,960 

1,038,471 

Car Allowance 

144,000 

144,000 

Performance Bonuses 

113,393 

176,388 

Contributions to UIF, Medical and Pension Funds 

85,203 

78,945 

Subsistance allowance 

- 

14,058 


1,776,556 

1,451,862 

Remuneration of chief finance officer( Mahuma L.M.E) 



Annual Remuneration 

975,216 

785,221 

Car Allowance 

240,000 

240,000 

Performance Bonuses 

111,993 

- 

Contributions to UIF, Medical and Pension Funds 

102,992 

96,207 

Subsistance allowance 

- 

12,543 

Acting allowance 

- 

5,062 


1,430,201 

1,139,033 

Chief Operating Officer(Mbulawa A.) 



Annual Remuneration 

662,096 

967,275 

Car Allowance 

34,000 

72,000 

Performance Bonuses 

78,395 

80,606 

Contributions to UIF, Medical and Pension Funds 

9,939 

1,547 


784,430 

1,121,428 


Remuration of executive managers( Mokotedi D, Thelejane M, Mokoena M, Mokebe R, Mathebula S, Seopasengwe 

B) 


Annual Remuneration 

4,742,207 

4,772,627 

Car Allowance 

757,660 

735,000 

Performance Bonuses 

619,866 

- 

Contributions to UIF, Medical and Pension Funds 

367,355 

438,629 

Annual bonus 

- 

56,198 


6,487,088 

6,002,454 


Salaries, allowance and benefits are within the upper limits of the framework envisaged in section 219 of the Constitution 


79 












Mogale City Local Municipality 

(Registration number GT 481) 

Trading as Mogale City Local Municipality 

Annual Financial Statements for the year ended 30 June 2012 

Notes to the Annual Financial Statements 

Figures in Rand 2012 2011 


31 . Remuneration of councillors 


Executive Mayor 

Mayoral Committee Members 

Speaker 

Councillors 

Councillors’ pension contribution 


713,667 

5,457,472 

532,611 

6,596,053 

4,654,405 


679,052 

5,297,880 

502,549 

5,875,825 

3,957,768 


17,954,208 16,313,074 


In-kind benefits 

The Executive Mayor, Speaker and Mayoral Committee Members are full-time. Each is provided with an office and 
secretarial support at the cost of the Council. 

The Executive Mayor is entitled to stay at the mayoral residence owned by Council at no cost. The Executive Mayor has use 
of a Council owned vehicle for official duties. 


The Executive Mayor has two full-time bodyguards. 

32. Depreciation and amortisation 

Intangible assets 1,506,853 2,009,514 

Property, plant and equipment 206,865,443 220,968,616 

208,372,296 222,978,130 


33. Impairment of assets 
Impairments 

Property, plant and equipment 6,556,586 4,738,270 

The main classes of assets affected by impairment losses are: 

Buildings: The buildings is not being used for its intended purpose as some of the halls are being used for residential 
purposes, private dwellings built on the wrong site and vandalised buliding on plot 265. 

Electricity: Theft of of substations in various parts of the municipality 

Community Assets: Squater invation in parks around Mogale City. 

Roads: Road base failure in Feartherbrooke and some roads in Mogale City which are not being used. 

Water and sanitation: theft and vandalism at boiketio pump station and some of sewer reticulation not being used. 

Investment Property: Squatter invasion on stand 489, Nooitgedacht 

34. Finance costs 

Bank 45,285,417 33,209,415 


Interest paid is mainly made up of long term borrowings from the Development Bank of Southern Africa, ABSA, INCA, 
Wesbank and interest costs for Post employement medical benefits and long services awards. 

35. Contracted services 


80 










Mogale City Local Municipality 

(Registration number GT 481) 

Trading as Mogale City Local Municipality 

Annual Financial Statements for the year ended 30 June 2012 

Notes to the Annual Financial Statements 

Figures in Rand 2012 2011 


35. Contracted services (continued) 

Information Technology Services 
Fleet Services 

Rental and communication services 
Specialist Services 
Other Contractors 


17,222,853 

24,306,928 

31,509,006 

3,134,333 

70,996,356 


18,778,943 

25,534,486 

21,688,837 

3,163,414 

53,319,264 


147,169,476 122,484,944 


36. Grants and subsidies paid 


Other subsidies 

Grants other 
Basic services 
Grants: in aid 
Grants discretionary 


369,508 

18,916,036 

531,966 

75,668 

19,893,178 


270,481 

5,561,673 

520,392 

131,903 

6,484,449 


37. Bulk purchases 


Electricity 
Water 

Sewer purification 

540,934,961 440,397,457 


405,596,024 322,950,030 

132,698,110 114,950,821 

2,640,827 2,496,606 


During the year under consideration MCLM had unaccounted water and electricity of 31 %, kl 1 0,491 ,085.34 (36%: 2011, kl 
10,659,988) and 5.87% kwh 42,710,274 (6.93 %: 2011, kwh 51,768,281 ) respectively. The total rand value of these losses 
were R 47,314,794 (R 49,194,405 : 2011) and R25,252,558 (R 27,573,207 : 201 1 ) respectivley. 

The apparent losses for water is 5% (R 7,097,219.23) 

38. Debt impairment 

Contributions to debt impairment provision 82,208,112 48,032,071 


Contribution to debt impairment provision is the movement of all debtors that are to be provided for. Refer note 1 1 for 
reconcialiation. 


81 











Mogale City Local Municipality 

(Registration number GT 481) 

Trading as Mogale City Local Municipality 

Annual Financial Statements for the year ended 30 June 2012 


Notes to the Annual Financial Statements 


Figures in Rand 

2012 

2011 

39. General expenses 



Advertising 

1,014,755 

688,981 

Assessment rates & municipal charges 

26,416,489 

13,638,213 

Audit committe remuneration 

144,885 

282,225 

Bank charges 

1,772,889 

1,934,363 

Internet fees 

541,025 

413,601 

Settlement and legal fees 

7,607,322 

7,746,619 

Consumables 

400,538 

321,352 

Entertainment 

125,405 

241,448 

Fines and penalties 

- 

3,587 

Gifts 

7,181 

17,601 

Insurance 

1,211,990 

2,475,015 

Bursary scheme/External 

889,000 

698,000 

Conferences and seminars 

119,900 

369,691 

Fleet 

85,769 

427,950 

Florticulture 

1,658,269 

1,760,583 

Magazines, books and periodicals 

101,723 

212,344 

Medical expenses 

- 

23,082 

Pest control 

32,037 

17,486 

Fuel and oil 

12,599,311 

10,952,529 

Postage and courier 

3,195,623 

2,462,969 

Printing and stationery 

2,533,363 

2,728,347 

Protective clothing 

168,735 

227,552 

Special Projects 

6,819,527 

13,904,083 

License fees 

6,078,496 

2,108,958 

Refreshments general & meetings 

502,701 

628,104 

Subscriptions and membership fees 

2,975,514 

2,177,898 

Telephone and fax 

14,972,197 

15,064,290 

Transport pool vehicles 

332,507 

291,450 

Training 

1,633,578 

1,450,835 

Travel - local 

1,077,845 

1,223,472 

Travel - overseas 

75,110 

95,141 

Purchases for consumption 

3,892,642 

3,113,799 

Skills levy 

3,226,463 

3,032,756 

Contribution leave provision 

900,995 

9,633,212 

Other expenses 

57,444,079 

29,350,002 


160,557,863 

129,717,538 

40. Cash generated from operations 



Surplus (deficit) 

31,459,546 

(85,432,647) 

Adjustments for: 



Depreciation and amortisation 

230,373,527 

224,722,314 

Impairment deficit 

6,556,586 

4,738,270 

Debt impairment 

82,208,112 

48,032,071 

Movements in operating lease assets and accruals 

684,164 

(361,893) 

Movements in retirement benefit assets and liabilities 

9,974,669 

11,837,779 

Movements in provisions 

8,152,013 

17,949,552 

Actuarial gains/losses 

6,210,845 

7,972,453 

Other non-cash items 

(140,957,689) 

(131,625,064) 

Movement on Finance lease 

6,896,417 

13,581,485 

Changes in working capital: 



Inventories 

5,049,354 

136,510,684 

Other receivables from exchange transactions 

(18,240,964) 

2,136,171 

Consumer debtors 

(93,020,658) 

(109,150,025) 

Trade and other payables from exchange transactions 

44,022,611 

17,855,817 

VAT 

4,786,868 

(404,629) 


82 








Mogale City Local Municipality 

(Registration number GT 481) 

Trading as Mogale City Local Municipality 

Annual Financial Statements for the year ended 30 June 2012 


Notes to the Annual Financial Statements 


Figures in Rand 

2012 

2011 

40. Cash generated from operations (continued) 

Unspent conditional grants and receipts 

3,436,555 

178,168 

Consumer deposits 

2,703,126 

447,998 


190,295,082 

158,988,504 

41. Commitments 

Authorised capital expenditure 



Already contracted for 

• Infrastructure 

792,694 

4,666,596 

• Community 

1,172,406 

6,454,137 

• Fleritage 

- 

418,415 

• Other 

59,263 

5,857,230 


2,024,363 

17,396,378 


This committed expenditure relates to plant and equipment and will be financed by available bank facilities, retained 
surpluses, existing cash resources, funds internally generated, etc. 

Operating leases - as lessee (expense) 

Minimum lease payments due 

- within one year 

- in second to fifth year inclusive 

47,872,438 85,753,366 


41,171,575 44,451,976 

6,700,863 41,301,390 


The total future minimum sublease payment expected to be received under non- 48,055,770 51 ,390,325 

cancellable sublease 

Operating lease payments represent rentals payable by the municipality for certain of its office, trucks, motor vehicles, 
cellphones and 3G cards and photocopy machine. Leases are negotiated for an average term of 36-120 months. Most of the 
rentals in terms of these operating lease arrangements are fixed while some rentals escalate on average by 10% or prime . 

No restrictions have been imposed on the municipality in terms of the operating lease agreements. No contingent rent is 
payable. 

Operating leases - as lessor (income) 

Minimum lease payments due 

- within one year 

- in second to fifth year inclusive 

- later than five years 

3,387,143 2,904,932 


1,088,619 760,298 

1,906,644 1,571,511 

391,880 573,123 


Certain of the municipality's property is held to generate rental income. Lease agreements have terms from 6 to 25 years, 
the rental escalates at 10% on average. There are no contingent rents receivable. 


83 














Mogale City Local Municipality 

(Registration number GT 481) 

Trading as Mogale City Local Municipality 

Annual Financial Statements for the year ended 30 June 2012 

Notes to the Annual Financial Statements 

Figures in Rand 2012 2011 


42. Contingencies Liabilities 

Outstanding legal matters 
Catergory A 


Motheo Group 1,600,000 1,600,000 

Suing MCLM for damages suffered as a result of cancellation of contract. 

Enviro-fill (Pty) ltd 0 2,500,000 

Claim for damages suffered subsequent to cancellation of contract. 

Special Occasions 0 62,000 

Claims for damages suffered after cancellation of contract without notification. 

Mathe Contsruction 5,500,000 5,500,000 

Suing MCLM for damages suffered as a result of cancellation of contract/ low cost housing. 

David Temple Nourse 0 290,000 

Deed of sale (purchased land) from red coral, red coral signed a LAA with municipality and has 
failed to complete development . 

Charles Deuces 0 25,000 

Claims for damages to vehicles as a result of unrehabilated roads. 

Charles Deuces 0 80,000 

Reimbursement of rates and taxes due to over charging by MCLM. 

T. Chauke 150,000 150,000 

P.Gouws 0 100,000 

Alleges that they were unlawfully assulted and detained by the traffic officer of council 

Lektratek (Pty) Ltd 5,000,000 0 

Alleges serious flaws with the awarding of tender and that it should have been awrded to him 

V. Venter 22,000 0 

Traffic vehicle of municipality collided with the plainteff's vehicle and he is claimimg for damages 

Chabano Trading Consultant 1,167,770 0 

The plaintiff alleges that the municipality has unlawfully terminated the contract 

Red Ants 569,000 0 


The plaintiff alleges that they have rendered services for cleaning the city and they have not been paid as at year end. 

Albert Stanford 2,000,000 

Plaintiff claims for injury caused when he fell in a storm water drainange 

Thembi Sheila Hlwatswayo 800,000 

Loss of income as result of husband's death caused by tree that fell on her husband motor vehicle. 

Subtotal 16,808,770 10,307,000 


Category B 
Labour matters 

M. Motale 70,000 0 

Appeal of disciplinary case against. 


84 






Mogale City Local Municipality 

(Registration number GT 481) 

Trading as Mogale City Local Municipality 

Annual Financial Statements for the year ended 30 June 2012 

Notes to the Annual Financial Statements 

Figures in Rand 2012 2011 


42. Contingencies Liabilities (continued) 

N. Mopitsing 30,000 300,000 

Salary disparity, unfair dismissal and unfair practices 


Murray &Ors 3,000,000 3,000,000 

Salary disputes- empicyees alleges that they were net paid cn the nctch that the were suppese tc be paid. 


A. Masonganye 

300,000 

300,000 

L. Tshoane 

300,000 

300,000 

Unfair dismissal. 



J. Mathye 

300,000 

300,000 

N. Mabunda 

300,000 

300,000 

J. Nkhumane 

300,000 

300,000 

S. Mogatia 

350,000 

350,000 

Unfair dismissal. 



S. Kuane 

74,000 

74,000 

Remuneration. 



Subtotal 

5,024,000 

5,224,000 

Total 

21,482,770 

15,181,000 


Contingent assets 


Die Bustuurderkommitte van die Jubilado Afttreeoord 

Subsequent to the billing of property rates, the municipality is suing the client for the arreas monies for non payment. The 
amount to be paid is R 50,000 

Homeveld Homes (Pty) Ltd 

The asset is under the control of the Municipality however, Homeveld Homes (Pty) Ltd fraudulently registered the asset 
under their name. There is a court case pending. The amount of the building concerned is R 33, 094, 933 


43. Related parties 
Relationships 

Accounting Officers Mr D.M Mashitisho 

Members of key management Mr L.M.E Mahuma 

Ms S. Mathebula 
Mrs R. Mokebe 
Mr B. Seopasengwe 
Ms M. Mokoena 
Ms M. Thelejane 
Mr D. Mokotedi 
Mr A. Mbulawa 

Transcations relating to key management personnel are disclosed in note 30 and have been accounted for according to IPS 
23 


85 






Mogale City Local Municipality 

(Registration number GT 481) 

Trading as Mogale City Local Municipality 

Annual Financial Statements for the year ended 30 June 2012 

Notes to the Annual Financial Statements 

Figures in Rand 2012 2011 


44. Prior year adjustments 

1. Investment Property 

Duplicated properties which was previously included in the BIQ financial system and IMQS system which is used for 
Infrastructure assets. Change of fair value adjustment as all the immoveable assets of Mogale City has been revalued at 
the correct amount. 

2. Property Plant and Equipment 

Properties in Chief Mogale development which was never accounted for, assets which was wrongly classified in Operational 
Budget instead of Capital Budget, correction of the amount of capital spares and correction of Vat in WIP's votes and the 
new valuation of assets. Valuation changes done on Property Plant and equipment. The municipality did not have supporting 
evidence for reported PPE values and as result of that a decision was taken to appoint the experts to determine the fair 
values of the infrastructure assets 

3. Other financial assets 

Correction of financial assets disclosed. 

4. Unspent conditional Grants 

Conditions met on grants which was not previuosly recognised 

5. Current Provisions 

Reclasification of Bonus Accrual and Leave Accrual to trade and other payables from exchange transcation. 

6. Trade and other payables from exchange transcations 

Correction of VAT on trade payables which was erronously reported, re-classification of leave accrual from provision and 
reclassification of bonus provision to trade and other payables. Reclaasification of Bonus Accrual and Leave Accrual from 
Current Provisions 

7. VAT Payable 

Correction of VAT on trade payables which was erronously reported. 

8. Accumulated Surplus Deficit 

Correction on income and expenses previously recorded as a results of VAT and conditions met on grants as well. Fair 
value changes on investment property. 

Properties in Chief Mogale development which was never accounted for, assets which was wrongly classified in Operational 
Budget instead of Capital Budget, correction of the amount of capital spares and correction of Vat in WIP's votes and the 
new valuation of assets. Valuation changes done on Property Plant and equipment. The municipality did not have 
supporting evidence for reported PPE values and as result of that a decision was taken to appoint the experts to determine 
the fair values of the infrastructure assets 

9. Government Grants and subsidies 

Conditions met on grants which was not previously recorded. 

10. Income from agency services 

Correction of VAT which was erroneously accounted for. 

11. Other income 

Changes in the fair value adjustments of investments property as all the immoveable assets of Mogale City has been 
revalued at the correct amount. 

12. Employee related costs 

Changes made to correct GFS item code between BIQ Financial System and Caseware Financial System. 

13. Depreciation & Armotisation 

Depreciation changes as a result of new valuations done on Property Plant and equipment due to the fact that Mogale City 
were unable to provide sufficient supporting documents to proof changes on opening balance for 2010/1 1 audit. 

14. Impairments of assets 

Reclassification of Impairments which was erroneously accounted for in the depreciation expenses and was also 


86 






Mogale City Local Municipality 

(Registration number GT 481) 

Trading as Mogale City Local Municipality 

Annual Financial Statements for the year ended 30 June 2012 

Notes to the Annual Financial Statements 

Figures in Rand 2012 2011 


44. Prior year adjustments (continued) 

ommited in the assets register. 

15. Contracted Services 

Reclasssification of contracted services to and from general expenses as a result of changes of classification between GFS 
items in BIQ Financial System and mapped information on Caseware. Correction of VAT which was erroneously accounted 
for on the expenses votes e.g telephone expenses, all the changes where done in terms of correct GFS item code in BIQ 
financial and caseware financial system. 

16. Grants and subsidies 

Changes made to correct GFS items code between BIQ Financial System and Caseware. 

17. Bulk purchases 

Changes made to correct GFS items code between BIQ Financial System and Caseware. 

18. collection costs 

Changes made to correct GFS items code between BIQ Financial System and Caseware. 

19. Repairs and maintenance 

Correction of VAT which was erroneously accounted for. 

20. General Expenses 

Reclasssification of general expenses to and from contracted services. This a result of changes of classification due to 
wrong mappings between Caseware and GFS items in Mogale City Trial balance. VAT which was erroneously accounted 
for on the expenses votes e.g telephone expenses. all the changes where done in terms of correct GFS items code in BIQ 
Financial System and Caseware. 

The correction of the error(s) results in adjustments as follows 


Statement of financial position 

Investment property 
Property plant and equipment 
Qther financial assets 
Unspent conditional grants 
Current provisions 

Trade and other payables from exchange transactions 
VAT payable 

Accumulated surplus/(deficit) 


(98,927,105) 

239,076,635 

(2,925,503) 

1,874,190 

48,564,934 

(47,947,744) 

1,261,293 

(116,678,866) 


Statement of Financial Performance 

Government grants and subsidies 

Interests Received: External nvestments 

Income from agency services 

Qther income 

Employee related costs 

Depreciation and amortisation 

Impairments 

Contracted Services 

Grants and subsidies paid 

Bulk purchases 

Collection costs 

Repairs and maintenance 

General expenses 


(1,874,190) 

2,925,502 

(1,047,519) 

6,472,105 

(15,918) 

15,415,047 

4,738,270 

45,652,974 

1,745,313 

2,496,606 

11,968,350 

(442,445) 

(62,322,213) 


45. Risk management 


Capital risk management 


87 






Mogale City Local Municipality 

(Registration number GT 481) 

Trading as Mogale City Local Municipality 

Annual Financial Statements for the year ended 30 June 2012 

Notes to the Annual Financial Statements 

Figures in Rand 2012 2011 


45. Risk management (continued) 

The municipality's objectives when managing capital are to safeguard the municipality's ability to continue as a going 
concern in order to maintain an optimal capital structure to reduce the cost of capital. 

The capital structure of the municipality consists of debt, which includes the borrowings (excluding derivative financial 
liabilities) disclosed in notes 14, cash and cash equivalents disclosed in note 12, and equity as disclosed in the statement 
changes in net assets. 

Consistent with others in the industry, the municipality monitors capital on the basis of the gearing ratio. 

This ratio is calculated as net debt divided by total capital. Net debt is calculated as total borrowings (including 'current and 
non-current borrowings' as shown in the statement of financial position) less cash and cash equivalents. Total capital is 
calculated as 'equity' as shown in the statement of changes in net assets plus net debt. 

The municipality's strategy is to maintain a gearing ratio of between 0.04% to 0.01%. 

There are no externally imposed capital requirements. 

There have been no changes to what the municipality manages as capital, the strategy for capital maintenance or externally 
imposed capital requirements from the previous year. 

The gearing ratio at 2012 and 201 1 respectively were as follows:0.16% and 0.15%. 

Total borrowings 


Finance lease obligation 

14 

21,236,614 

14,340,197 

Other financial liabilities 

18 

195,093,029 

205,698,195 



216,329,643 

220,038,392 

Less: Cash and cash equivalents 

12 

43,775,288 

39,335,662 

Net debt 


172,554,355 

180,702,730 

Total equity 


5,173,132,201 

5,141,672,624 

Total capital 


5,345,686,556 

5,322,375,354 


Financial risk management 

The municipality’s activities expose it to a variety of financial risks: market risk (including currency risk, fair value interest 
rate risk, cash flow interest rate risk and price risk), credit risk and liquidity risk. 

Liquidity risk 

The municipality’s risk to liquidity is a result of the funds available to cover future commitments. The municipality manages 
liquidity risk through an ongoing review of future commitments and credit facilities. Cash flow forecast are prepared and 
adequate utilised borrowing facilities are monitored. 

Interest rate risk 

The municipality’s interest rate risk arises from long-term borrowings. Borrowings issued at variable rates expose the 
municipality to cash flow interest rate risk. Borrowings issued at fixed rates expose the municipality to fair value interest rate 
risk. Municipality policy is to maintain approximately 100% of its borrowings in fixed rate instruments. During 2012 and 
201 1 , the municipality’s borrowings at variable rate were denominated in the Rand value. 

Credit risk 

Credit risk consists mainly of cash deposits, cash equivalents and trade and other receivable from non exchange 
transcations and consumer debtors. The municipality only deposits cash with major banks with high quality credit standing 
and limits exposure to any one counter-party. 


88 






Mogale City Local Municipality 

(Registration number GT 481) 

Trading as Mogale City Local Municipality 

Annual Financial Statements for the year ended 30 June 2012 

Notes to the Annual Financial Statements 

Figures in Rand 2012 2011 


45. Risk management (continued) 

Trade receivables comprise a widespread customer base. Management evaluated credit risk relating to customers on an 
ongoing basis. If customers are independently rated, these ratings are used. Otherwise, if there is no independent rating, 
risk control assesses the credit quality of the customer, taking into account its financial position, past experience and other 
factors. Individual risk limits are set based on internal or external ratings in accordance with limits set by the board. The 
utilisation of credit limits is regularly monitored. 

No credit limits were exceeded during the reporting period, and management does not expect any deficits from non- 
performance by these counterparties. 

Market risk 

(a) a sensitivity analysis for each type of market risk to which the entity is exposed at the end of the reporting period, 
showing how profit or loss and equity would have been affected by changes in the relevant risk variable that were 
reasonably possible at that date; 

(b) the methods and assumptions used in preparing the sensitivity analysis; and 

(c) Changes from the previous period in the methods and assumptions used, and the reasons for such changes.” 

Post-tax surplus for the year would increase/decrease as a result of gains or losses on equity securities classified as at fair 
value through surplus or deficit. Other components of equity would increase/decrease as a result of gains or losses on 
equity securities classified a available-for-sale. 

46. Unauthorised expenditure 

General expenses 
Less: amounts condoned 


49,376,502 11,823,672 

(49,376,502) (11,823,672) 


2012 

General expenses line item has exceeded budget and this was as a result of the non cash items which increased due to 
the fact that some infrastructure assets were written off and replaced with the new ones. Below are the categorised items 
that have exceeded the budget : 

Debt imparment : exceeded the budget by R 12,031, 763 

Depreciation and amortisation : exceeded budget by R 5, 605, 082 

Assets write off expense account: exceeded budget by R 25,761 ,803 

Contributions to Bonus, Overtime and Gratuity exceeded budget by R2, 673, 528 

Leave Provision exceeded budget by R900, 995 

WCA Contributions exceeded budget by (R269, 736) 

Labour Sheets exceeded budget by (R774, 513) 

Interests on post employement medical and long services awards R 2,908,008 
The council has since condoned it on the 27 th September 2012 

2011 

The general expenses amounting to R 1 1 ,823,672 relates to all the expenses incurred by the municipality in total and has 
been condoned by council. The main contributor was bulk purchases. 

47. Irregular expenditure 

Opening balance 

Irregular Expenditure - current year 
Irregular expenditure- prior year 
Less: Expenditure regularised by Council 

Closing balance 42,249,024 


11,913,491 

30,335,533 


89 








Mogale City Local Municipality 

(Registration number GT 481) 

Trading as Mogale City Local Municipality 

Annual Financial Statements for the year ended 30 June 2012 

Notes to the Annual Financial Statements 

Figures in Rand 2012 2011 


47. Irregular expenditure (continued) 

2012 

During the year under review the municipality has incurred irregular expenditure to the value of R 1 1 ,91 3,491 . These are as 
a result of legacy contracts. The system of identifying irregular expenditures is in a constant state of improvement so that in 
future all irregular expenditure will be identified and reported on. The municipality will embark on a process of making sure 
that all the proper procedures pertaininng to the SCM process and regulations are followed in future. 

Due to non compliance, irregular expenditure to the value of R 30,335,533 was identified. A large portion of these breaches 
relates mainly to a number of legacy contracts and arrangements awarded in the prior years and a few in the financial year 
that did not comply with the requirements of SCM policy. 

48. Additional disclosure in terms of Municipal Finance Management Act 

Contributions to organised local government 

Current year subscription / fee 
Amount paid - current year 


2,913,122 2,066,850 

(2,913,122) (2,066,850) 


Audit fees 

4,468 

2,696,741 2,820,318 

(2,696,741) (2,824,786) 


Opening balance 

Current year subscription / fee 

Amount paid - current year 


PAYE and UIF 


Opening balance 
Current year subscription / fee 
Amount paid - current year 
Amount paid - previous years 


3,909,561 

56,143,276 

(52,001,849) 

(3,909,561) 

4,141,427 


3,557,271 

52,830,346 

(48,596,890) 

(3,881,166) 

3,909,561 


Pension and Medical Aid Deductions 


Opening balance 

Current year subscription / fee 

Amount paid - current year 


11,852 5,926 

101,995,969 86,990,935 

(101,991,301) (86,985,009) 

16,520 11,852 


Councillors' arrear consumer accounts 

The following Councillors had arrear accounts outstanding for more than 90 days at 30 June 2012: 


30 June 2012 

Outstanding 

Outstanding 

Total 


less than 90 

more than 90 

R 


days 

days 



R 

R 


Ndlovu TV 

326 

1,344 

1,670 

Magodielo C 

1,529 

- 

1,529 

Molefi J&M 

968 

- 

968 

Kourcos A 

1,670 

7,464 

9,134 


90 












Mogale City Local Municipality 

(Registration number GT 481) 

Trading as Mogale City Local Municipality 

Annual Financial Statements for the year ended 30 June 2012 


Notes to the Annual Financial Statements 


Figures in Rand 


2012 

2011 

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




4,493 

8,808 

13,301 

30 June 2011 

Outstanding 

Outstanding 

Total 


less than 90 

more than 90 

R 


days 

days 



R 

R 


Dikgale LC 

689 

3,661 

4,350 

Dintoe MS 

853 

3,711 

4,564 

Gogotya NM 

999 

5,550 

6,549 

Lekone J 

1,607 

1,860 

3,467 

Magodielo C 

324 

2,749 

3,073 

Mangole K 

891 

5,344 

6,235 

Molapo PT 

686 

3,941 

4,627 

Mpanza BJ 

1,091 

5,888 

6,979 

Putilli L 

953 

5,065 

6,018 

Ramafoko MA 

307 

859 

1,166 

Seemela E 

515 

3,917 

4,432 


8,915 

42,545 

51,460 


2011 

During the year the following Councillors: Dikgale LC, Dintoe MS, Lekone J, Putilli L and Ramafoko MA had arrear accounts 
outstanding for more than 90 days, their term expired on the 31 May 201 1 . 

49. Biological assets 



2012 


2011 


Cost / 

Accumulated Carrying value Cost/ 

Accumulated Carrying value 

Valuation 

depreciation 

Valuation 

depreciation 



and 


and 



accumulated 


accumulated 



impairment 


impairment 


Biological assets 3,395,876 

- 

3,395,876 

- 

- 

Reconciliation of biological assets - 2012 


Opening 

balance 

Transfers 

Total 

Biological assets 


- 

3,395,876 

3,395,876 

Reconciliation of biological assets - 2011 





Details of assets 





Quantities of each biological asset 

Wildebeest 



369,796 


Blesbuck 



681,465 

- 

Eland 



365,725 

- 

Gemsbuck 



68,419 

- 

Giraffe 



53,341 

- 

Impala 



141,309 

- 

Kudu 



51,796 

- 

Lion 



350,000 

- 

Ostrich 



9,691 

- 

Flartbees 



595,731 

- 

Sable 



383,594 

- 


91 














Mogale City Local Municipality 

(Registration number GT 481) 

Trading as Mogale City Local Municipality 

Annual Financial Statements for the year ended 30 June 2012 


Notes to the Annual Financial Statements 


Figures in Rand 

2012 

2011 

49. Biological assets (continued) 

Springbuck 

124,075 

- 

Waterbuck 

105,948 

- 

Zebra 

94,986 

- 


3,395,876 

- 

Biological assets were valued by independent accredited valuer as at the 30 June 2012. 



50. Operating lease asset/Liabilities 

Current assets 

398,477 

361,893 

Non-current liabilities 

(148,197) 

- 

Current liabilities 

(572,551) 

- 


(322,271) 

361,893 

51 . Audit committe remuneration 

Fees 

144,885 

282,225 


52. Events after the reporting date 
2012 

Municipality has exceeded its operating expenditure budget which was mainly contributed by non-cash items as at the 30 
June 2012, Howver council condoned it on 27th September 2012. 

Below are the caterorised items that have exceeded the budget : 

Debt imparment : exceeded the budget by R 12,031, 763 

Depreciation and amortisation : exceeded budget by R 5, 605, 082 

Assets write off expense account: exceeded budget by R 25,761 ,803 

Contributions to Bonus, Overtime and Gratuity exceeded budget by R2, 673, 528 

Leave Provision exceeded budget by R900, 995 

WCA Contributions exceeded budget by (R269, 736) 

Labour Sheets exceeded budget by (R774, 513) 

Interests on post employement medical and long services awards R 2,908,008 

2011 

Municipality incurred an over-expenditure on general expenses as at the 30 June 201 1 , Howver council condoned it on 26th 
October 201 1 . This was done by identifying savings on the votes which have not overspent as per approved budget policy 
of the municipality 

General expenses 

General expenses - 11,823,672 


92 









Mogale City Local Municipality 

(Registration number GT 481) 

Trading as Mogale City Local Municipality 

Annual Financial Statements for the year ended 30 June 2012 

Notes to the Annual Financial Statements 

Figures in Rand 2012 2011 


53. Fruitless and wasteful expenditure 

Technical review on AFS 09/10 
Other 

Eskom & Rand Water 


217,448 

437,142 

4,214,522 

4,214,522 654,590 


2012 

The municipality incurred fruitless and wastefull expenditure on Eskom and Rand Water Accounts respectively as a results 
of of late payments. 

2011 

The municipality incurred an expenditure of R 217, 448 on the review of the financial statement which never yieded results 
and the work done was not worth the price quoted. 

An amount of R 433,554.81 relates to penality regarding late submission to the compensation commisioner in 2010/1 1 and 
R 3,587 relates to late payment for MED retirement fund. 


54. Utilisation of Long-term liabilities reconciliation 

Long-term liabilities raised 195,093,029 205,698,195 

Used to finance property, plant and equipment 178,388 (44,924,658) 

195,271,417 160,773,537 


Long-term liabilities have been utilized in accordance with the Municipal Finance Management Act. Sufficient cash has 
been set aside to ensure that long-term liabilities can be repaid on redemption date. 


93 










Mogale City Local Municipality 

(Registration number GT 481) 

Trading as Mogale City Local Municipality 

Annual Financial Statements for the year ended 30 June 2012 

Notes to the Annual Financial Statements 

Figures in Rand 2012 2011 


55. Deviation from supply chain management regulations 

Paragraph 12(1)(d)(i) of Government gazette No. 27636 issued on 30 May 2005 states that a supply chain management 
policy must provide for the procurement of goods and services by way of a competitive bidding process. 

Paragraph 36 of the same gazette states that the accounting officer may dispense with the official procurement process in 
certain circumstances, provided that he records the reasons for any deviations and reports them to the next meeting of the 
accounting officer and includes a note to the annual financial statements. 


94 






Mogale City Local Municipality 

(Registration number GT 481) 

Trading as Mogale City Local Municipality 

Annual Financial Statements for the year ended 30 June 2012 


Notes to the Annual Financial Statements 


Figures in Rand 

2012 2011 

55. Deviation from supply chain management regulations (continued) 

COUNCIL ITEM NR 

K(ii) 3(10/2011) 

DESCRIPTION 

Unforeseen escape of four buffaloes from Krugersdorp Game Reserve 

AWARDED TO 

M Prangley Wildlife Services 

AMOUNT 

R 109,755.95 

SECTION 

36(1)(a)(i) 

COUNCIL ITEM NR 

K(ii) 3(10/2011) 

DESCRIPTION 

Assessment of the Waste Water Treatment Works and Sewarage Pump Stations, in 
order to compile a maintenance audit report and to capture data on the municipal 
assistant software system 

AWARDED TO 

WAM Technology cc 

AMOUNT 

R 517,400 (excluding VAT) 

SECTION 

36(1)(a)(ii) 

COUNCIL ITEM NR 

K(ii) 3(1/2012) 

DESCRIPTION 

Conclusion of the jobsfund applications and the related business plans on behalf of 

MCLM 

AWARDED TO 

SWFI advisory services (PTY) Ltd 

AMOUNT 

Appointment based on risk. If funding applications are successful and approved by 

DBSA, MCLM will pay according to scales based on funding received from DBSA: 

R50m -1.75% 

R 100 m - 1.5% 

R 150 m - 1.25% 

SECTION 

36(1)(a)(v) 

COUNCIL ITEM NR 

K(ii) 3(1/2012) 

DESCRIPTION 

Appointment of Intergrasol to provide council with leave management services, 
encompassing a reconciled leave balance at financial year end and the updating of leave 
management functions from Jan to June 201 1 

AWARDED TO 

Intergrasol Consortium CA (SA) 

AMOUNT 

Quotation September 2011: R 355,308 

Quotation Qctober 201 1 : R 309,828 

SECTION 

36(1)(a)(v) 

COUNCIL ITEM NR 

K(ii) 3(01/2012) 

DESCRIPTION 

Appointment of acutech business solutions for the roll out of phase 2 of the enterprise 
project management and microsoft sharepoint 2010 

AWARDED TO 

Acutech business solutions 

AMOUNT 

R 300,000 (excluding VAT) 

SECTION 

K(ii) 3(01/2012) 

COUNCIL ITEM NR 

K(ii) 3(01/2012) 

DESCRIPTION 

Extension of scope of work for tender i (W&S) 04/2010: Maintenance of water and 
wastewater equipment in MCLM - immediate action was required to prevent further 
spillages as a result of the mal-functions Boiketlho, Rietvallei EXT 1 and 5 Sewer 
pumpstations and Kagiso 12 Resevoir 

AWARDED TO 

Tecroveer (Pty) Ltd 

AMOUNT 

Contract Value increased from R 15, 517,743.67 to R 22, 601, 357.67 

SECTION 

36(1)(a)(i) 

COUNCIL ITEM NR 

K(ii) 3(01/2012) 

DESCRIPTION 

Development of a township regeneration strategy, business plans and project plans in 
terms of the Neighbourhood Development Partnership Grant(NDPG) 

AWARDED TO 

Afro Architectual 

AMOUNT 

Payment through MDPG grant received from National Treasury 

No center funding from MCLM at this stage 

SECTION 

36(1)(a)(v) 


95 






Mogale City Local Municipality 

(Registration number GT 481) 

Trading as Mogale City Local Municipality 

Annual Financial Statements for the year ended 30 June 2012 


Notes to the Annual Financial Statements 


Figures in Rand 

2012 2011 

55. Deviation from supply chain management regulations (continued) 

COUNCIL ITEM NR 

K(ii) 2(04/2012) 

DESCRIPTION 

Extension of Fidelity Security Services contract for a period of two months 

AWARDED TO 

Fidelity Security Services 

AMOUNT 

R1 1 14 000 pm for two months 

SECTION 

36(1)(a)(v) 

COUNCIL ITEM NR 

K(ii) 2(04/2012) 

DESCRIPTION 

Extension of Fidelity Security contract for a period of two months 

AWARDED TO 

Fidelity Security Services 

AMOUNT 

R1, 114, 000 

SECTION 

36(1)(a)(v) 

COUNCIL ITEM NR 

K(ii) 2(04/2012) 

DESCRIPTION 

Extension of contract with Protea Eco Adventures for management of game reserve until 
award of new tender (June 2012) 

AWARDED TO 

Protea Eco Adventures 

AMOUNT 

R 80,000 pm 

SECTION 

36(1)(a)(v) 

COUNCIL ITEM NR 

K(ii) 2(04/2012) 

DESCRIPTION 

Extension of contract for the review of organasational transcation data and recovery of 
money 

AWARDED TO 

Comperio Technologies (Pty) ltd 

AMOUNT 

The fee (exclusive of VAT) is based on actual recoverables facilitated and is calculated on 
20% of all recoverables 

SECTION 

36(1)(a)(v) 

COUNCIL ITEM NR 

K(ii) 2(04/2012) 

DESCRIPTION 

Provision of an Electronic Local Government Perfomance and Compliance Manual 

AWARDED TO 

Local Government Perfomance and Compliance Solutions 

AMOUNT 

R 24,000 (excluding VAT) 

Subscription for 2 officials for 12 months 

SECTION 

36(1)(a)(ii) 

COUNCIL ITEM NR 

K(ii) 2(04/2012) 

DESCRIPTION 

Appointment of Aloe Cap as sole advisor on the risk-sharing model to enhance collection 
of debtors book for a period of 3 years 

AWARDED TO 

Aloe Cap 

AMOUNT 

Provincial Government is financing the project. An admin fee of 1% of gross collection 
received by MCLM payable to Aloe Cap for duration of contract ( to be negotiated) 

SECTION 

36(1)(a)(v) 

COUNCIL ITEM NR 

K(ii) (07/2012) 

DESCRIPTION 

Extension of BIQ Financial System for a period of six months as from 1 May to 31 

October 2012 

AWARDED TO 

Quill Associates (Pty) Ltd 

AMOUNT 

R 330,000 pm (excluding VAT) 

SECTION 

36(1)(a)(ii) 

COUNCIL ITEM NR 

K(ii) (07/2012) 

DESCRIPTION 

Appointment of ERWAT( an acredited laboratory) to analyze five samples of wastewater 
effluent per week for a period of one year as per prescribed in the green drop 

AWARDED TO 

ERWAT 

AMOUNT 

Expenditure per week R 3,904.50 (including VAT) 

Total will not exceed R 200,000 for period of one year 

SECTION 

36(1)(a)(v) 


96 






Mogale City Local Municipality 

(Registration number GT 481) 

Trading as Mogale City Local Municipality 

Annual Financial Statements for the year ended 30 June 2012 


Notes to the Annual Financial Statements 


Figures in Rand 

2012 2011 

55. Deviation from supply chain management regulations (continued) 

COUNCIL ITEM NR 

K(ii) (07/2012) 

DESCRIPTION 

Extension of scope of work for the review of the organisational transactional data by 

Comperio Forensic Services 

AWARDED TO 

Comperio Forensic Services 

AMOUNT 

Fixed rate of R 180,000 (excluding VAT) 

SECTION 

36(1)(a)(v) 

COUNCIL ITEM NR 

K(ii) (07/2012) 

DESCRIPTION 

Training on FIIV Counselling and testing for cluster supervisors and ward based 
volunteers-condonation as only three quotations were obtained and not advertised on the 
website 

AWARDED TO 

Empirical Training Agency 

AMOUNT 

R 69,654 (including VAT) 

SECTION 

36(1)(a)(v) 

COUNCIL ITEM NR 

K(ii) (07/2012) 

DESCRIPTION 

Procuring of 3-way electrical meter boxes- Condonation. Tender 1 (E)08/2009 has expired 
and stores purchased stock for electricity project from expired tender 

AWARDED TO 

Power Process Systems 

AMOUNT 

R 114,570 

SECTION 

36(1)(a)(v) 

COUNCIL ITEM NR 

K(ii) (07/2012) 

DESCRIPTION 

Extension of scope of work for tender F (R) 06/2009: Management of Credit Control and 
Revenue Protection Aministration and related field actions for a period of three years to 
include the replacement of dysfuntional water meters in featherbrook estate with pre-paid 
water meters 

AWARDED 

UMS. (PES- Utility) Part of existing tender which allows for replacement of credit type 
water meters, repair of water leaks and cleaning of meter boxes. 

SECTION 

36(1)(a)(v) 

COUNCIL ITEM NR 

DESCRIPTION 

Extension of tender for Printing and dispatching of monthly statements 

AWARDED 

CAB Holdings (Pty) Ltd 

AMOUNT 

R 169,421 

SECTION 

36(1)(a)(v) 

COUNCIL ITEM NR 

DESCRIPTION 

Appointment of 4 community based cooperatives to perfom Road Maintenance Works at 
Kagiso, Munsieville, Rietvallei and the Central Business District of MCLM on an as when 
required basis for a period of 12 Months. 

AWARDED 

MM Cleaning & Multipurpose Co-operative, DSL- GB Civil Contsruction, Serontabole 
Construction and Maintenance, Ntshebelo Agricultural Farming Cooperation. 

AMOUNT 

R 500,000 

SECTION 

36(1)(a)(v) 


97 






Mogale City Local Municipality 

(Registration number GT 481) 

Trading as Mogale City Local Municipality 

Annual Financial Statements for the year ended 30 June 2012 


Notes to the Annual Financial Statements 

Figures in Rand 


56. Statement of comparative and actual information 
2012 


Original 

budget 


Budget Final budget Actual 
adjustments outcome 

(i.t.o. s28 and 
s31 of the 
MFMA) 


Variance Actual Actual 

outcome as % outcome as % 
of final budget of original 
budget 


Financial Performance 


Property rates 

253,083,508 

256,401,869 

256,401,869 

259,477,567 

(3,075,698) 

101 

% 

103 

% 

Service charges 

963,514,879 

981,567,613 

981,567,613 

951,363,075 

30,204,538 

97 

% 

99 

% 

Investment revenue 

2,272,052 

534,306 

534,306 

4,729,654 

(4,195,348) 

885 

% 

208 

% 

Transfers recognised - operational 

200,723,782 

213,882,333 

213,882,333 

201,607,680 

12,274,653 

94 

% 

100 

% 

Other own revenue 

68,416,807 

93,643,240 

93,643,240 

266,064,356 

(172,421,116) 

284 

% 

389 

% 

Total revenue (excluding capital transfers and contributions) 

1,488,011,028 

1,546,029,361 

1,546,029,361 

1,683,242,332 

(137,212,971) 

109 

% 

113 

% 

Employee costs 

(418,215,160) 

(406,311,625) 

(397,067,510) 

(397,067,503) 

(7) 

100 

% 

95 

"% 

Remuneration of councillors 

(19,312,096) 

(19,312,096) 

(17,954,208) 

(17,954,208) 

- 

100 

% 

93 

% 

Debt impairment 

(80,527,665) 

(70,176,349) 

(70,176,349) 

(82,208,112) 

12,031,763 

117 

% 

102 

% 

Depreciation and asset impairment 

(10,453,189) 

(209,307,267) 

(209,307,267) 

(236,930,113) 

27,622,846 

113 

% 

2,267 

% 

Finance charges 

(22,983,573) 

(25,308,849) 

(42,377,409) 

(45,285,417) 

2,908,008 

107 

% 

197 

% 

Materials and bulk purchases 

(484,452,445) 

(549,582,727) 

(540,934,961) 

(540,934,961) 

- 

100 

% 

112 

% 

Transfers and grants 

(7,235,606) 

(18,163,666) 

(19,893,178) 

(19,893,178) 

- 

100 

% 

275 

% 

Other expenditure 

(331,432,313) 

(365,733,474) 

(366,185,171) 

(395,016,820) 

28,831,649 

108 

% 

119 

% 

Total expenditure 

[1 ,374,61 2,047)[1 ,663,896,053)[1 ,663,896,053)[1 ,735,290,31 2) 

71,394,259 

104 

% 

126 

% 

Surplus/(Deficit) 

113,398,981 

(117,866,692) 

(117,866,692) 

(52,047,980) 

(65,818,712) 

44 

% 

(46)% 


98 










Mogale City Local Municipality 

(Registration number GT 481) 

Trading as Mogale City Local Municipality 

Annual Financial Statements for the year ended 30 June 2012 

Notes to the Annual Financial Statements 

Figures in Rand 

56. Statement of comparative and actual information (continued) 


Transfers recognised - capital 

Surplus (Deficit) after capital transfers and contributions 
Surplus/(Deficit) for the year 


Original Budget Final budget Actual 

budget adjustments outcome 

(i.t.o. s28 and 
s31 of the 


Variance Actual Actual 

outcome as % outcome as % 
of final budget of original 
budget 


MFMA) 


115,424,178 

102,105,697 

102,105,697 

91,065,026 

11,040,671 

89 % 

79 % 

228,823,159 

(15,760,995) 

(15,760,995) 

39,017,046 

(54,778,041) 

(248)% 

17 % 

228,823,159 

(15,760,995) 

(15,760,995) 

39,017,046 

(54,778,041) 

(248)% 

17 % 


99 






Mogale City Local Municipality 

(Registration number GT 481) 

Trading as Mogale City Local Municipality 

Annual Financial Statements for the year ended 30 June 2012 


Notes to the Annual Financial Statements 

Figures in Rand 


56. Statement of comparative and actual information (continued) 



Original 

Budget 

Final budget 

Actual 

Variance 

Actual 

Actual 


budget 

adjustments 


outcome 


outcome as % outcome as % 



(i.t.o. s28 and 




of final budget 

of original 



s31 of the 





budget 



MFMA) 






Capital expenditure and funds sources 








Total capital expenditure 

226,212,770 

176,951,393 

176,951,393 

169,406,161 

7,545,232 

96 % 

75 % 

Cash flows 








Net cash from (used) operating 

188,892,117 

188,892,117 

188,892,117 

190,295,082 

(1,402,965) 

101 % 

101 % 

Net cash from (used) investing 

(174,805,083) 

(174,805,083) 

(174,805,083) 

(176,208,048) 

1,402,965 

101 % 

101 % 

Net cash from (used) financing 

(9,647,408) 

(9,647,408) 

(9,647,408) 

(9,647,408) 

- 

100 % 

100 % 

Net increase/(decrease) in cash and cash equivalents 

4,439,626 

4,439,626 

4,439,626 

4,439,626 

- 

100 % 

100 % 

Cash and cash equivalents at the beginning of the year 

39,335,662 

39,335,662 

39,335,662 

39,335,662 

- 

100 % 

100 % 

Cash and cash equivalents at year end 

43,775,288 

43,775,288 

43,775,288 

43,775,288 

- 

100 % 

100 % 


Refer to note 46 for narrative reasons for variances. 


100