Entire Document - Chris Hani District Municipality

10.PROVISIONSProvisions are recognised when the municipality has a present or constructiveobligation as a result of past events, it is probable that an outflow of resourcesembodying economic benefits or service potential will be required to settle theobligation and a reliable estimate can be made of the obligation.CHRIS HANI DISTRICT MUNICIPALITY ANNUAL REPORT 2011 / 2012The best estimate of the expenditure required to settle the present obligation isthe amount that the municipality would rationally pay to settle the obligation at thereporting date or to transfer it to a third party at that time and are determined by thejudgment of the management of the municipality, supplemented by experience ofsimilar transactions and, in some cases, reports from independent experts. Theevidence considered includes any additional evidence provided by events afterthe reporting date. Uncertainties surrounding the amount to be recognised as aprovision are dealt with by various means according to the circumstances. Wherethe provision being measured involves a large population of items, the obligation isestimated by weighting all possible outcomes by their associated probabilities.Future events that may affect the amount required to settle an obligation are reflectedin the amount of a provision where there is sufficient objective evidence that theywill occur. Gains from the expected disposal of assets are not taken into account inmeasuring a provision. Provisions are not recognised for future operating losses.The present obligation under an onerous contract is recognised and measured asa provision. An onerous contract is a contract in which the unavoidable costs ofmeeting the obligations under the contract exceed the economic benefits expectedto be received under it. The unavoidable costs under a contract reflect the leastnet cost of exiting from the contract, which is the lower of the cost of fulfilling it andany compensation or penalties arising from failure to fulfil it – this unavoidable costresulting from the contract is the amount of the provision to be recognised.Provisions are reviewed at reporting date and the amount of a provision is the presentvalue of the expenditure expected to be required to settle the obligation. Whenthe effect of discounting is material, provisions are determined by discounting theexpected future cash flows that reflect current market assessments of the time valueof money. The impact of the periodic unwinding of the discount is recognised in theStatement of Financial Performance as a finance cost as it occurs.268