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QUESTION 3 ( 4 5 Marks ) Bluehound Coach Lines ( Pty ) Ltd ( Bluehound ) is a South African travel agency and transport

QUESTION 3(45 Marks)
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 companys 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% per annum nonapportioned for time
Buses Straight-line 8 years
4 years apportioned for
time
Workshop equipment Diminishing balance 12.5% 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 1.12,100,0002,300,000
Facilities 1.213,300,00014,000,000
Buses 1.316,200,00027,000,000
Workshop equipment 1.4348,778797,207
31,948,77844,097,207
1.1. Land - On 28 February 2021, the land was revalued down from R2.3 million to R2.1 million. The original cost for land
was R1.8 million.
1.2. Facilities - Included in the facilities owned by Bluehound is an administration building purchased for R4500000 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.
1.3. 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 R3.2 million per Bluehound luxury coach and R2.2 million per Townliner semiluxury coach.
In November 2020, management decided to discontinue certain routes in light of poor performance associated with Covid19 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 R6.1 million.
1.4. 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 R680
000. The disposed workshop equipment accounted for half of workshop equipment that Bluehound owned. Bluehound
received a consideration of R220000 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 4.1(1,740,000)(2,970,000)
Provision for penalties and fines 4.2(43,000)(125,000)
Provision for retrenchments 4.3(800,000)
(2583000)(3095000)
4.1.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.
4.2.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 se

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