Tex Limited Case Study - Grey Limited - Accounting Assignment Help

Assignment Task:

ASSIGNMENT 1 

QUESTION ONE 
Tex Limited bought a manufacturing plant for R500 000 on 1 January 2016 and put it into production immediately. 
• The plant had a useful life of 5 years, a residual value of nil and is depreciated using the straight-line basis. 
• The profit before taxation in 2019 was R150 000 (2018: R120 000).
• The tax authorities allow wear and tear on the following basis: 

1. 50% of the cost in the first year 
2. 30% of the cost in the second year
3. 20% of the cost in the third year 

• The tax rate remained constant at 40% from 2016 to 2019. 
• The company's financial year ends on 31 December. 
• There are no other differences between accounting profit and taxable profit other than those evident from the information given.
• The plant was sold for R100 000 on 31 December 2019. 

Required 
a) Calculate deferred tax using the balance sheet approach for 2016 to 2019.
b) Calculate the taxable profit and current income tax expense for 2018 and 2019.

QUESTION TWO 
Grey Limited is a bus-line that has a network of routes linking major cities around South Africa. They operate a fleet of buses which transport passengers throughout the year. On 24 December 2018 one of these buses had crashed into a tree while on the route between Johannesburg and Durban. Many of the passengers on-board were injured. Grey Limited's year-end is 31 December, and its financial statements are authorized for issue on 15 February each year. 

Part A 

• South African traffic law requires companies that provide transport facilities to compensate any passengers injured while using the service. 
• Grey Limited's lawyers have estimated that the company will be obliged to pay R2000 000 in compensation under the relevant statute, but the amount will only be confirmed when the company receives notice from the National Traffic Agency in March 2019. 

Part B 

• There is no law requiring Grey Limited to pay compensation, but it is common practice in the public transport industry for companies to compensate passengers who are injured while using their service. 
• A typical pay-out for a similar accident is R2000 000 compensation to the affected passengers. 

Part C 

• There is no law or common industry practice which might require Grey Limited to pay compensation to the injured passengers. Media reports have, however, led to the public interest in the accident, and many groups have expressed outrage at Grey Limited's lack of Christmas spirit is not assisting its customers. 
• As a result, the managing director of Grey Limited made a public announcement on 15 January 2019, in which he stated that the company would pay compensation to those affected by the accident. The company's accountants have estimated that such compensation payments will cost the company R2000 000. 

Required 
For each scenario, discuss whether a provision should be recognized in respect of the compensation in the financial statements of Grey Limited for the year ended 31 December 2018, in accordance with International Financial Reporting Standards. 

QUESTION THREE 
Bar Limited is a company that farms corn. Bar Limited is a relatively new company in the corn industry, having previously been in the furniture manufacturing industry. Bar Limited was awarded a government grant of R500 000 on 1 January 2015, the details of which are as follows: 
• R300 000 is to assist with the purchase of a new harvester; 
• R200 000 is for immediate financial support and is not associated with any future costs; 
• All conditions attaching to the grant have been met. 

Later that day, the harvester was acquired for R900 000. The harvester has a useful life of 5 years and, at the end of its useful life, Bar Limited expects to sell it for R50 000 as scrap metal.

Required 
a) Show the general journal entries for the years ended 31 December 2015 to 2019 using the direct method (recognised as grant income)

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