Bluehound Coach Lines $($Pty$)$ Ltd $($Bluehound$)$ is a South African travel agency and transport service company. Bluehound

operates luxury Bluehound coaches and semi$-$luxury, and therefore affordable, coaches in Townliner. The company

transports passengers between major cities and towns on a daily basis. Bluehound transports on average $800000$

passengers per annum, while Townliner transports on average $500000$ passengers per annum across the country and

bordering countries. However, this record history changed drastically and unexpectedly when Covid$-19$ hit the shores of

South Africa in March $2020,$ the start of the of the company$$s financial year.

The company year$-$end is the last day of February.

Below is an extract of the Bluehound financial information:

Notes $20212020$

R R

Dr $/($Cr$)$ Dr $/($Cr$)$

Property Plant and Equipment $131,948,77844,097,207$

Insure Prepaid $234,56045,800$

Deferred revenue $/$ Contract liability $3-13,580-82,500$

Provisions $4-2,583,000-3,095,000$

Water and rates payables $-18,750-11,560$

Profit before tax $/($Loss before tax$)$ Calculated correctly $5-7,540,50032,580,000$

$1.$ Property, plant and equipment

Property, plant and equipment comprises of land, facilities $($buildings and workshop warehouses$),$ buses and workshop

equipment used for the repairs and maintenance of buses.

Apart from land, which is measured using the revaluation model, all property, plant and equipment is measured using the

cost model. Below is a summary of depreciation, and taxation write off periods for the respective items of property, plant and

equipment.

Asset Depreciation Method

Total Estimated Useful

life Tax write$-$off period

Land N$/$A Non depreciable Indefinite N$/$A Not tax deductible

Facilities Straight$-$line $30$ years

$5\%$ p e r a n n u m n o n $-$

apportioned for time

Buses Straight$-$line $8$ years

$4$ years apportioned for

time

Workshop equipment Diminishing balance $12\mathrm{.}5\%$ per annum

$5$ years apportioned for

time

Where relevant, you may assume that residual values are zero.

The following is a breakdown of carrying amounts of property, plant and equipment shown in the extract above:

$20212020$

Land $1\mathrm{.}12,100,0002,300,000$

Facilities $1\mathrm{.}213,300,00014,000,000$

Buses $1\mathrm{.}316,200,00027,000,000$

Workshop equipment $1\mathrm{.}4348,778797,207$

$31,948,77844,097,207$

$1\mathrm{.}1.$ Land $-$ On $28$ February $2021,$ the land was revalued down from R$2\mathrm{.}3$ million to R$2\mathrm{.}1$ million. The original cost for land

was R$1\mathrm{.}8$ million.

$1\mathrm{.}2.$ Facilities $-$ Included in the facilities owned by Bluehound is an administration building purchased for R$4500000$ for

which no tax allowances are granted. You may assume that all facilities were purchased on $1$ March $2010$ and that no

facilities have been sold or impaired since then.

$1\mathrm{.}3.$ Buses $-$ Bluehound owns $8$ Bluehound luxury coaches and $8$ Townliner semi$-$luxury coaches. You may assume that all

buses were purchased on $1$ March $2017$ at R$3\mathrm{.}2$ million per Bluehound luxury coach and R$2\mathrm{.}2$ million per Townliner semiluxury

coach.

In November $2020,$ management decided to discontinue certain routes in light of poor performance associated with Covid$-$

$19$ and lockdown regulations. Following on this decision, on $28$ February $2021,$ Bluehound sold four of its coaches $($two

luxury Bluehound and two semi$-$luxury Townliner coaches$)$ on a lucrative deal in an auction at a total profit of R$6\mathrm{.}1$ million.

$1\mathrm{.}4.$ Workshop equipment $-$ The effect of discontinued routes stated above led to the closure and therefore disposal of

workshop equipment in the affected areas. The workshop equipment sold on $28$ February $2021$ was purchased for R$680$

$000.$ The disposed workshop equipment accounted for half of workshop equipment that Bluehound owned. Bluehound

received a consideration of R$220000$ for the workshop equipment sold. You may assume that all workshop equipment was

purchased on $1$ March $2016.$

$2.$ Insurance prepaid

All insurance costs are incurred in the production of income and are deductible for tax purposes when paid.

$3.$ Deferred revenue or contract liability

This account relates to bus tickets paid for future travel that is still outstanding at reporting date.

$4.$ Provisions

A summary of the provisions$$ ledger accounts shows the following:

$20212020$

Provision for claims, accommodation and shuttling $4\mathrm{.}1(1,740,000)(2,970,000)$

Provision for penalties and fines $4\mathrm{.}2(43,000)(125,000)$

Provision for retrenchments $4\mathrm{.}3(800,000)$

$(2583000)(3095000)$

$4\mathrm{.}1.$At each year end, Bluehound raises a provision for litigation for claims brought against the company by the

commuters and drivers who embark on strikes. In addition, a provision for accommodation and shuttling for drivers

when out$-$of$-$town is raised. All these provisions are considered to be in the production of income and are deductible

for tax purposes when paid.

$4\mathrm{.}2.$A provision for penalties and fines is also raised annually and this is not deductible for tax purposes on the same

basis that penalties and fines would not be deductible in terms of section $23($o