Reference no: EM13825451
Problem:
Elvis, a shareholder in Holly plc, read the company's audit, which had been prepared by Mercury & Partners. The audit valued the assets of Holly plc at £8 million. On the strength of that, Elvis purchased more shares. His wife, Dionne, also read the audit and bought some shares in Holly plc for herself. Another company, Ivy plc, who already owned some Holly shares, had also seen the audit prepared by Mercury. They contacted Mercury, saying they were considering a takeover of Holly plc, and asked for further financial projections about Holly's likely performance. This was supplied by Mercury and following this Ivy purchased enough of Holly's shares to take over the company.
Excited by the thought of his impending riches, Elvis decided to drive his friend Kate to the airport so she could catch an overnight plane to Canada for an important meeting. They were held up in traffic and Kate was convinced she would miss her flight. After they had waited at a red light for a long time Kate shouted: 'You stupid fool, the lights have jammed. There is not a thing in sight. Get a move on'. Elvis could not see any traffic approaching and moved across the junction. He hit a bicycle ridden at speed by Edward, who is wearing dark clothing and has no lights on his bicycle. Kate, who is not wearing a seat belt is injured and Edward who suffers from a heart condition has a heart attack brought on by the stress of the accident.
It has since become known that Mercury & Partners carelessly prepared the audit and that, in truth, the assets of Holly plc were worth only £1 million. As a result, Elvis and Dionne have each lost £100,000 on their shares. The financial projections prepared by Mercury for Ivy were also shown to be wrong causing a large loss to Ivy plc.
Critically discuss how the law of negligence might be applied:
(i) To Elvis and Dionne's claim against Mercury
(ii) To Ivy's claim against Mercury
(iii) To Edward and Kate's claim against Elvis
Additional Information:
This is a sample case study which deals with the negligence. An audit firm which misrepresented financial position of company had been sued for professional negligence by the third party who invested in the company whose financial position had been misrepresented. The possible claims in the above case have been given in solution.
Total Word Limit: 1497 Words
Purchase qualified replacement property
: On November 18, 2014, equipment is stolen from ABC manufacturing. ABC purchased the equipment for $100,000 and its adjusted basis is $0. The insurance company paid ABC $20,000 for its loss on January 6, 2015. How long does ABC have to purchase qualif..
|
What is the operational cash flow
: What are the differences in the cash flow concepts and procedures between the direct and indirect methods - What is the operational cash flow and what is the financing cash flow?
|
Book value-double-declining-balance method
: On January 1, 2015, Paulson Transport Company purchased a ship for $2,000,000. It has a ten-year useful life and a residual value of $50,000. The company uses the double-declining-balance method. What was the book value of the ship for Paulson Transp..
|
Describe uncollectible receivables
: Describe Uncollectible Receivables. What are the two methods of accounting for uncollectible receivables?
|
Professional negligence and misrepresentation
: Elvis, a shareholder in Holly plc, read the company's audit, which had been prepared by Mercury & Partners. The audit valued the assets of Holly plc at £8 million.
|
Multi-step income and single-step income statement
: Accounting for merchandise companies. Compare the Multi-step Income Statement and the Single-Step Income Statement. List two accounts used in a merchandising business that are not used in a service business
|
Obtain a vendors license and buy a pushcart
: These multiple choice questions related to Economics. The first question is about statement about a week being the long run and the second question is about marginal product being equal to average product.
|
Contribution margin technique-compute the break-even point
: In the month of March, Style Salon services 660 clients at an average price of $160. During the month, fixed costs were $21,700 and variable costs were 65% of sales. Determine the contribution margin in dollars, per unit, and as a ratio. Using the co..
|
Prepare the entry to record purchase of terrell galleries
: Prepare the entry to record the purchase of Terrell Galleries on Graf's books
|