Mr LJ Mahlangu - Municipal Demarcation Board

Trade payables
Trade payables are recognised initially at fair value
and subsequently measured at amortised cost
using the effective interest rate method.
De-recognition of financial assets
The entity de-recognises financial assets using
trade date accounting.
The entity de-recognises a financial asset only
when:
i. The contractual rights to the cash flows from
the financial asset expire, are settled or
waived;
ii. The entity transfers to another party substantially
all of the risks and rewards of ownership
of the financial assets; or
iii. The entity, despite having retained some significant
risks and rewards of ownership of the
financial asset, has transferred control of the
asset to another party and the other party has
the practical ability to sell the asset in its entirety
to an unrelated third party and is able
to exercise that ability unilaterally and without
needing to impose additional restrictions on
the transfer.
De-recognition of financial liabilities
The entity de-recognises Financial Liabilities
when, and only when, the entity’s obligations are
discharged, cancelled or they expire.
Risk Management of Financial Assets and Liabilities
It is the policy of the entity to disclose information
that enables the user of its financial statements to
evaluate the nature and extent of risks arising from
financial instruments to which the entity is exposed
on the reporting date.
Risks and exposure are disclosed as follows:
Credit Risk
Each class of financial instrument is disclosed
separately. Maximum exposure to credit risk not
covered by collateral is specified. Financial instruments
covered by collateral are specified.
Liquidity Risk
Liquidity risk is the risk that the entity will encounter
difficulty in meeting the obligations associated with
its financial liabilities that are settled by delivering
cash or another financial asset. Sufficient cash is
maintained to manage the MDB’s liquidity risk.
Interest Risk
Interest rate risk originates from the uncertainty
about the fair value or future cash flows of a financial
instrument which fluctuate because of
changes in market interest rates. Management
has assessed the impact of interest rate risk on
the operations of the entity and considers the risk
to be negligible.
Market Risk
Market risk is the risk that changes in market prices,
such as foreign exchange rates, interest rate and
equity prices will affect the entities income or the
value of its holdings of financial instruments. The
objective of market risk management is to manage
and control market risk exposures within acceptable
parameters, while optimizing the return.
O. IMPAIRMENT OF FINANCIAL ASSETS
At each reporting date, the Board reviews the carrying
amounts of its tangible and intangible assets
to determine whether there is any indication that
those assets have suffered an impairment loss. If
any such indication exists, the recoverable amount
of the asset is estimated in order to determine the
extent of the impairment loss (if any). Recoverable
amount is the higher of fair value less costs to sell
and value in use. In assessing value in use, the
estimated future cash flows are discounted to their
present value using a pre-tax discount rate that reflects
current market assessments of the time value
of money and the risks specific to the asset.
If the recoverable amount of an asset is estimated
to be less than its carrying amount, the carrying
amount of the asset is reduced to its recoverable
MUNICIPAL DEMARCATION BOARD - Annual Report 2012 58