Sellco & Midwest Farmers Inc With Akhnaton Trading Case Study - Accounting Assignment Help

Assignment Task

Scenario 1. 

Sellco sells to Buyco 10,000 metric tons (+/- 5% in sellers’ option) any Black Sea origin feed wheat, CIF Ashdod or Haifa. The shipment period is 1-10 January, no extension. Gafta 48 is incorporated. The price is US$150 per metric ton payable by bank transfer to Sellco’s bank within two working days of receipt by Buyco of fax copy documents, including a bill of lading and a quality certificate.  

The parties have been in dispute before and each is concerned about the other’s financial standing.  The contract also provides that at least 15 days before the commencement of the shipment period  Sellco shall open a performance bond in favor of Buyco for 50% of the contract value and that within  48 hours of the opening of Sellco’s performance bond Buyco is to make a pre-payment of 20% of the price.  

On 16 December Sellco open a performance bond for US$500,000. They tell Buyco that a further performance bond for the balance will be opened “within a few days”. Buyco do not make any prepayment and Sellco opens no further performance bond.  

On 11 January Sellco advise Buyco that MV “LUCKY STAR” completed loading under the contract the  previous day and ask the Buyco for instructions as to how the shipping documents are to be made out.  Buyco responds by saying they require a single set showing themselves as notify party in the B/L.  

Notice of appropriation is given and on 11 January Sellco fax copies of the shipping documents to  Buyco. They include a bill of lading dated 10 January covering 10,000 mt and a contractual quality certificate. 

Buy do not pay. They have some information about events on loading. Buy advise Sellco on 17  January that they are suspending payment pending completion of their investigations into the fact that they heard that “LUCKY STAR” only completed loading in the early hours of 11 January.  

The same day Sellco advise the Buyco:- 

“You have not made the required 20% prepayment and have not paid against fax copy documents. We  hereby declare you to be in default”.  

Buyco respond:-

On the contrary, it is you that is in default. You have not opened a performance bond covering 50%  of the contract value. The B/L is falsely dated.” 

Task 1 

Please explain giving reasons, which party, if either, is in default? 

Scenario 2: 

Midwest Farmers Inc (“Midwest”) enters into a contract with Akhnaton Trading SA (“Akhnaton”) for the sale of 75,000 metric tons 10% +/- sellers’ option of No.2 or better US Hard Red Winter Wheat CIF  Alexandria. Shipment is to be in 3 x 25,000 (+/- 10%) installments in each of the months January – March of the following year.  

With regard to each installment payment of the price is to be made by way of a confirmed irrevocable  and transferable letter of credit, to be opened by Egyptian Agricultural Bank and confirmed by First  Midwest Bank NA.  

Because of exchange control difficulties Akhnaton is unable to arrange for the opening of a letter of  credit until 13 January. This covers 25,000 tons + 10% at the contract price and provides for bills of  lading dated 1-31 January. It is expressed to be “fully divisible”. Akhnaton has earlier assured Midwest  that that L/C formalities are in hand and that because of the New Year holidays in Europe there will  be some small delay in providing the guarantee from Global.  

These assurances are satisfactory to Midwest. On 10 January Midwest has given Notice of  Appropriation for 27,500 metric tons of No.2 US Hard Red Winter Wheat shipped on mv “LUNA” under  B/L’s dated 2 January.  

Documents are presented under the L/C and are paid for.  

“LUNA” discharges in Egypt and on 29 January and Midwest receives confirmation of an L/C. This is in  exactly the same terms as the previous L/C except that it provides for bills of lading dated 1-28  February, it covers up to 25,000 metric tons and it provides for an additional document to be  presented: “official certificate from authorised body confirming that goods in all respects comply with  Egyptian import and exchange control regulations”.  

In response Midwest immediately advises Akhnaton, by an email later on 29 January:  

“Your L/C advised to us today is not in accordance with our contract X. Unless contractual L/C opened  and confirmed to us by close of business tomorrow (Jan. 30) we will hold you in default”  

There is no response from Akhnaton and on 1 February Midwest advises Akhnaton.  

“You are in default for both February and March installments of the contract as you have not opened  contractual L/C’. We hereby declare default”.  

Task 2 

Please consider and advise, giving your reasons, which, if any of the LC’s were opened contractually,  who, if anyone is in default and what possible claims may arise. Consider all three months.

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