Golf Adelaide Pty Ltd owns the Glen Ormond Golf course which is the site for the Australian
Question:
Golf Adelaide Pty Ltd owns the Glen Ormond Golf course which is the site for the Australian Golf Championship this coming July. The Australian Golf Championship is a very prestigious event in the international golfing calendar. Golf Adelaide Pty Ltd are keen to impress the International Golfing Union with the championship as it invariably leads to the course being commended for further high profile and profitable events. As preparations are underway for the championship the course is undergoing renovations. These included the installation of a major new irrigation pipe network to ensure that the grassed areas are perfectly watered to enhance the course. Golf Adelaide Pty Ltd engaged Wet Pty Ltd ('Wet') as the contractor to undertake the works. It is a small, but high profile, contract for Wet who are engaged to install the irrigation system in June a month before the championship is due to be held. The contract value including materials was $8,000. Wet are informed that the work is required to be finished well ahead of the championship. Wet saw the publicity it would receive as being worth the extra resources required to do the job in that timeframe. Wet starts the work but there is a delay in the importation of the piping so that the work is not as yet finished the day before the publicity shots are to be taken of the course by the various international television networks telecasting the championship. Golf Adelaide Pty Ltd is seriously embarrassed and wants to cancel the contract but as the event is now due in a few days they let Wet finish the installation. In completing the installation Wet used locally sourced pipe connections materials. On Day 1 of the championship leaks in the piping saw flooding over half the course. Golf Adelaide Pty Ltd says that they had no alternative but to move the championship to the nearby Mount Ormond course where it was completed. Golf Adelaide Pty Ltd suffered badly in the media and the International Golfing Union was not impressed with the championship's organization at all. Golf Adelaide Pty Ltd incurred a number of losses as a result of the flooding. These included losses as a result of: -
1 relocating the event to the Mount Ormond course being $50,000; 2 repairing the piping that caused the flooding being $12,000; 3 rebuilding the flooded course of $16,000; 4 refunding membership fees for the lost use of the course for 3 weeks; and further 5 the cancellation of 2 tournaments scheduled for January and May next year which had been scheduled; and 6 the loss of the expected benefits that would have flowed from a favorable report from the International Golf Union. Wet have informed Golf Adelaide Pty Ltd that the costs of replacing the faulty piping is only $3,000 and that that is all that they are prepared to pay. They maintain that if they were informed of the leak in a timely manner the losses would have been limited to that amount only. In any event, the total amount of the contract was only $8,000 so they are prepared to refund the amount as a goodwill gesture! Are Golf Adelaide Pty Ltd's losses recoverable? Give detailed reasons.
Accounting Business Reporting for Decision Making
ISBN: 9780730302414
4th edition
Authors: Jacqueline Birt, Keryn Chalmers, Albie Brooks, Suzanne Byrne, Judy Oliver