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uMtshezi Local Municipality
Draft Annual Financial Statements
for the year ended 30 June 2011
uMtshezi Local Municipality
Draft Annual Financial Statements for the year ended 30 June 2011
Index
The reports and statements set out below comprise the draft annual financial statements presented to the council:
Index Page
Accounting Officer's Responsibilities 2
Approval of Annual Financial Statements 4
Statement of Financial Position 5
Statement of Financial Performance 6
Statement of Changes in Net Assets 7
Cash Flow Statement 8
Accounting Policies 9 - 19
Notes to the Draft Annual Financial Statements 20 - 40
The following supplementary information does not form part of the draft annual financial statements and is unaudited:
Detailed Statement of Financial Performance 41
Abbreviations
COID Compensation for Occupational Injuries and Diseases
CRR Capital Replacement Reserve
DBSA Development Bank of South Africa
SA GAAP South African Statements of Generally Accepted Accounting Practice
GRAP Generally Recognised Accounting Practice
GAMAP Generally Accepted Municipal Accounting Practice
HDF Housing Development Fund
IAS International Accounting Standards
IMFO Institute of Municipal Finance Officers
IPSAS International Public Sector Accounting Standards
ME's Municipal Entities
MEC Member of the Executive Council
MFMA Municipal Finance Management Act
MIG Municipal Infrastructure Grant (Previously CMIP)
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uMtshezi Local Municipality
Draft Annual Financial Statements for the year ended 30 June 2011
Accounting Officer's Responsibilities
The accounting officeris 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 draft annual financial statements and related financial
information included in this report. It is the responsibility of the accounting officer to ensure that the draft 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 year then ended. The external auditors are engaged to express an independent opinion on
the draft annual financial statements and was given unrestricted access to all financial records and related data.
The draft annual financial statements have been prepared in accordance with Standards of Generally Recognised Accounting
Practice (GRAP).
The draft annual financial statements are based upon appropriate accounting policies consistently applied and supported by
reasonable and prudent judgements and estimates.
The accounting officeracknowledges that sheis ultimately responsible for the system of internal financial control established
by the municipality and places considerable importance on maintaining a strong control environment. To enable the accounting
officer to meet these responsibilities, the accounting officer sets standards for internal control aimed at reducing the risk of
error or deficit in a cost effective manner. The standards include the proper delegation of responsibilities within a clearly
defined framework, effective accounting procedures and adequate segregation of duties to ensure an acceptable level of risk.
These controls are monitored throughout the municipality and all employees are required to maintain the highest ethical
standards in ensuring the municipality’s business is conducted in a manner that in all reasonable circumstances is above
reproach. The focus of risk management in the municipality is on identifying, assessing, managing and monitoring all known
forms of risk across the municipality. While operating risk cannot be fully eliminated, the municipality endeavours to minimise it
by ensuring that appropriate infrastructure, controls, systems and ethical behaviour are applied and managed within
predetermined procedures and constraints.
The accounting officeris 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 draft
annual financial statements. However, any system of internal financial control can provide only reasonable, and not absolute,
assurance against material misstatement or deficit.
The accounting officerhas 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, sheis satisfied that the municipality has or has access to adequate resources to
continue in operational existence for the foreseeable future.
The municipality is wholly dependent on the income from services, rates and grants for continued funding of operations. The
draft annual financial statements are prepared on the basis that the municipality is a going concern and that the council has
neither the intention nor the need to liquidate or curtail materially the scale of the municipality
The external auditorsare responsible for independently reviewing and reporting on the municipality's draft annual financial
statements. The draft annual financial statements have been examined by the municipality's external auditors and their report
is presented on page 4.
The draft annual financial statements set out on pages 4 to 41, which have been prepared on the going concern basis, were
approved by the accounting officer on 31 August 2011.
Accounting Officer
MS P.N Njoko
2
uMtshezi Local Municipality
Draft Annual Financial Statements for the year ended 30 June 2011
Chairperson of the Audit Committee
Date:
3
uMtshezi Local Municipality
Draft Annual Financial Statements for the year ended 30 June 2011
Approval of Annual Financial Statements
I am responsible for the preparation of these annual financial statements, which are set out on pages 6 to 36, in terms of
Section 126(1) of the Municipal Finance Management Act and which I have signed on behalf of the Municipality.
I certify that the salaries, allowances and benefits of Councillors, loans made to Councillors, if any, and payments made to
Councillors for loss of office, if any, as disclosed in note 20 of these annual financial statements are within the upper limits
of the framework envisaged in Section 219 of the Constitution, read with the Remuneration of Public Officer Bearers Act
and the Minister of Provincial and Local Government’s determination in accordance with this Act.
__________________________________________________________________ .
Accounting Officer
PN Njoko
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uMtshezi Local Municipality
Draft Annual Financial Statements for the year ended 30 June 2011
Statement of Financial Position
2011 2010
Restated
Note(s) R R
Assets
Current Assets
Inventories 4 533,820 388,468
Loans and receivables 13 221,835 279,698
Other receivables 6 2,228,522 3,340,493
VAT receivable 7 6,551,982 2,469,131
Consumer debtors 8 45,501,137 49,433,233
Investments 5 5,599,315 156,348
Cash and cash equivalents 9 9,942,324 9,692
70,578,935 56,077,063
Non-Current Assets
Property, plant and equipment 2 639,572,990 641,822,104
Intangible assets 3 169,782 246,716
Loans and receivables 13 1,421,128 526,003
Investments 5 97,921 97,921
641,261,821 642,692,744
Non-current assets held for sale 19 2,280,702 -
Total Assets 714,121,458 698,769,807
Liabilities
Current Liabilities
Current portion of long term loan 43 562,131 -
Finance lease obligation 10 1,202,195 1,112,058
Trade and other payables 14 21,289,807 18,347,839
Consumer deposits 15 2,398,301 2,196,927
Retirement benefit obligation 40 926,000 -
Unspent conditional grants and receipts 11 2,392,780 2,878,852
Provisions 12 8,629,370 6,360,642
Bank overdraft 9 - 5,155,265
37,400,584 36,051,583
Non-Current Liabilities
Long term loan 43 5,928,712 2,242,107
Finance lease obligation 10 2,206,304 3,357,504
Retirement benefit obligation 40 10,362,000 -
18,497,016 5,599,611
Total Liabilities 55,897,600 41,651,194
Net Assets 658,223,858 657,118,613
Net Assets
Reserves
Housing operating account 1,095,260 1,095,260
Accumulated surplus 657,128,598 656,023,353
Total Net Assets 658,223,858 657,118,613
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uMtshezi Local Municipality
Draft Annual Financial Statements for the year ended 30 June 2011
Statement of Financial Performance
2011 2010
Restated
Note(s) R R
Revenue 16 217,818,529 185,893,721
Other income 1,037,507 1,386,213
Operating expenses (214,112,269) (204,044,053)
Operating surplus (deficit) 4,743,767 (16,764,119)
Investment revenue 1,069,371 333,148
Write off of current assets (33,095) (133,685)
Finance costs 26 (1,012,362) (917,286)
Surplus (deficit) for the year 4,767,681 (17,481,942)
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uMtshezi Local Municipality
Draft Annual Financial Statements for the year ended 30 June 2011
Statement of Changes in Net Assets
Housing Accumulated Total net
operating surplus assets
account
R R R
Balance at 01 July 2009 1,095,260 637,124,757 638,220,017
Changes in net assets
Change in net assets - 5,856,836 5,856,836
Prior year adjustments - 1,259,971 1,259,971
Net income (losses) recognised directly in net assets - 7,116,807 7,116,807
Surplus for the year - (17,481,942) (17,481,942)
Total recognised income and expenses for the year - (10,365,135) (10,365,135)
Change in accounting policy - 29,263,731 29,263,731
Total changes - 18,898,596 18,898,596
Balance at 01 July 2010 Restated 1,095,260 656,023,353 657,118,613
Changes in net assets
Prior year adjustments - (7,660,844) (7,660,844)
Additions - Fair market value - 3,998,408 3,998,408
- (3,662,436) (3,662,436)
Surplus for the year - 4,767,681 4,767,681
Total recognised income and expenses for the year - 1,105,245 1,105,245
Total changes - 1,105,245 1,105,245
Balance at 30 June 2011 1,095,260 657,128,598 658,223,858
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uMtshezi Local Municipality
Draft Annual Financial Statements for the year ended 30 June 2011
Cash Flow Statement
2011 2010
Restated
Note(s) R R
Cash flows from operating activities
Receipts
Sale of goods and services 221,750,625 184,979,143
Payments
Cash paid to suppliers and employees (171,242,326) (177,277,189)
Finance costs (1,012,362) (917,286)
(172,254,688) (178,194,475)
Net cash flows from operating activities 30 49,495,937 6,784,668
Cash flows from investing activities
Purchase of property, plant and equipment 2 (32,384,855) (24,904,028)
Purchase of other intangible assets 3 - (170,544)
Decrease in financial investments (5,442,967) 9,397,303
Purchase of investments - -
Interest received 1,069,371 333,148
Increase in loans and receivables (837,262) (79,883)
Net cash flows from investing activities (37,595,713) (15,424,004)
Cash flows from financing activities
Increase in long term loans 4,248,736 6,932
Movement in finance lease obligation (1,061,063) 239,103
Net cash flows from financing activities 3,187,673 246,035
Net increase/(decrease) in cash and cash equivalents 15,087,897 (8,393,301)
Cash and cash equivalents at the beginning of the year (5,145,573) 3,147,727
Cash and cash equivalents at the end of the year 9 9,942,324 (5,145,574)
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uMtshezi Local Municipality
Draft Annual Financial Statements for the year ended 30 June 2011
Accounting Policies
1. Presentation of Draft Annual Financial Statements
The draft 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
in accordance with the Municipal Finance Management Act (Act 56 of 2003).
These draft 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.
1.1 Significant judgements and sources of estimation uncertainty
In preparing the draft annual financial statements, management is required to make estimates and assumptions that affect the
amounts represented in the draft 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 draft annual financial statements. Significant judgements include:
Trade receivables
The municipality assesses its trade receivables and loans and receivables for impairment at the end of each reporting period.
In determining whether an impairment loss should be recorded in surplus or deficit, the surplus makes judgements as to
whether there is observable data indicating a measurable decrease in the estimated future cash flows from a financial asset.
The impairment for trade receivables and loans and receivables is calculated on a portfolio basis, based on historical loss
ratios, adjusted for national and industry-specific economic conditions and other indicators present at the reporting date that
correlate with defaults on the portfolio. These annual loss ratios are applied to loan balances in the portfolio and scaled to the
estimated loss emergence period.
Fair value estimation
The carrying value less impairment provision of trade receivables and payables are assumed to approximate their fair values.
The fair value of financial liabilities for disclosure purposes is estimated by discounting the future contractual cash flows at the
current market interest rate that is available to the municipality for similar financial instruments.
Provisions
Provisions were raised and management determined an estimate based on the information available. Additional disclosure of
these estimates of provisions are included in note 12 - Provisions.
Effective interest rate
The municipality used the prime interest rate to discount future cash flows.
Allowance for doubtful debts
On debtors an impairment loss is recognised in surplus and deficit when there is objective evidence that it is impaired. The
impairment is measured as the difference between the debtors carrying amount and the present value of estimated future cash
flows discounted at the effective interest rate, computed at initial recognition.
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