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QUESTION 3 ( 4 5 Marks ) Bluehound Coach Lines ( Pty ) Ltd ( Bluehound ) is a South African travel agency and transport
QUESTION Marks
Bluehound Coach Lines Pty Ltd Bluehound is a South African travel agency and transport service company. Bluehound
operates luxury Bluehound coaches and semiluxury, and therefore affordable, coaches in Townliner. The company
transports passengers between major cities and towns on a daily basis. Bluehound transports on average
passengers per annum, while Townliner transports on average passengers per annum across the country and
bordering countries. However, this record history changed drastically and unexpectedly when Covid hit the shores of
South Africa in March the start of the of the companys financial year.
The company yearend is the last day of February.
Below is an extract of the Bluehound financial information:
Notes
R R
Dr Cr Dr Cr
Property Plant and Equipment
Insure Prepaid
Deferred revenue Contract liability
Provisions
Water and rates payables
Profit before tax Loss before tax Calculated correctly
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 writeoff period
Land NA Non depreciable Indefinite NA Not tax deductible
Facilities Straightline years
per annum nonapportioned for time
Buses Straightline years
years apportioned for
time
Workshop equipment Diminishing balance per annum
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:
Land
Facilities
Buses
Workshop equipment
Land On February the land was revalued down from R million to R million. The original cost for land
was R million.
Facilities Included in the facilities owned by Bluehound is an administration building purchased for R for
which no tax allowances are granted. You may assume that all facilities were purchased on March and that no
facilities have been sold or impaired since then.
Buses Bluehound owns Bluehound luxury coaches and Townliner semiluxury coaches. You may assume that all
buses were purchased on March at R million per Bluehound luxury coach and R million per Townliner semiluxury coach.
In November management decided to discontinue certain routes in light of poor performance associated with Covid and lockdown regulations. Following on this decision, on February Bluehound sold four of its coaches two
luxury Bluehound and two semiluxury Townliner coaches on a lucrative deal in an auction at a total profit of R million.
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 February was purchased for R
The disposed workshop equipment accounted for half of workshop equipment that Bluehound owned. Bluehound
received a consideration of R for the workshop equipment sold. You may assume that all workshop equipment was
purchased on March
Insurance prepaid
All insurance costs are incurred in the production of income and are deductible for tax purposes when paid.
Deferred revenue or contract liability
This account relates to bus tickets paid for future travel that is still outstanding at reporting date.
Provisions
A summary of the provisions ledger accounts shows the following:
Provision for claims, accommodation and shuttling
Provision for penalties and fines
Provision for retrenchments
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 outoftown is raised. All these provisions are considered to be in the production of income and are deductible
for tax purposes when paid.
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 se
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