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Postal Services Act, 1998 (Act No. 124 of 1998)

Accounting Separation Regulations for Reserved Postal Services

9. Accounting Separation Methodology

 

1) Revenues, costs and assets must be reported by business, cost centre and product/service segment and must be transparent and non-discriminatory.

 

2) Revenues from the provision of services must be recorded in the Licensed Operator's accounts at a detailed enough level to enable direct allocation to services. Where revenues are not sufficiently unbundled to allow direct allocation, they should be attributed using the causation principle.

 

3) Revenues must be reported gross of discounts and other cost of sales line items. Direct costs such as volume discounts, agent commissions, etc, are to be reported separately.

 

4) Terminal fees and dues must be reported separately, where terminal fees are to be classified as revenues and terminal dues are to be classified as direct costs.

 

5) Operating costs and capital employed are drawn from accounting records and must be categorised into one of the following :
a) Directly attributable costs.
b) Indirectly attributable costs.
c) Unattributable costs.

 

6) The Licensed Operator must prepare profit/loss statements by business segment, cost centre and product/service segment. The following items are to be excluded from profit/loss statements and to be replaced by a cost of capital:
a) Interest charges;
b) Corporate tax charges; and
c) Extraordinary items.

 

7) The Weighted Average Cost of Capital ('WACC") is to be applied to each business segment, cost centre and product/service segment based on their proportionate share of non-current assets and net working capital.

 

8) WACC is calculated by estimating the cost of each source of funds and weighting them to form a weighted average cost of capital as follows:

 

WACC = [Proportion of Equity x Cost of Equity] + [Proportion of Debt x Cost of Debt x (1 - Corporate Tax Rate)]

 

9) The Licensed Operator must estimate the pre-tax WACC, which is relevant for determining transfer charges from cost centres, where:
 

 

10) The Licensed Operator must provide the Authority with information detailing the methods, values and source of all variables used in WACC calculations, including any assumptions made.

 

11) The Authority reserves the right to require amendment to the WACC applied by the Licensed Operator.

 

12) The Authority may only require such amendment to the WACC if done so in writing, supported by evidence and calculations of its own estimate of the Licensed Operator's WACC or elements thereof.

 

13) In the absence of compelling evidence in support of an alternative method, which must be provided to and agreed by the Authority, the Licensed Operator should adopt the capital asset pricing model ("CAPM") for the estimation of cost of equity.

 

14) The WACC is to be applied to the net book value ("NBV") of assets which should equal the total amount of the assets required for regulated operations less the amount of the liabilities related to regulated operations, other than interest bearing debt.
a) Accounts payable should be deducted in arriving at NBV. These amounts represent funding provided by an entity's suppliers and reduce the amount of funding that the regulated entity must provide (i.e. through debt or equity);
b) Where it is assumed that an entity collects deferred taxes through allowed rates as the taxes are normally expensed, the amount of its deferred taxes should be deducted in arriving at NBV. In such a case, the deferred taxes represent amounts that the entity is expected to have collected from its customers for a cost that it has not yet had to pay out. In this situation available cash is cleared to reduce the amount of funding which must be provided by the regulated entity.