Commercial Damages As the textbook authors point out, calculating commercial damages takes creative analysis as well as a step-by-step scientific approach. Each situation will be different.

Commercial Damages As the textbook authors point out, calculating commercial damages takes creative analysis as well as a step-by-step scientific approach. Each situation will be different.

Questions

What are the major categories of commercial damages?

Research one category and discuss what accounting records you would need to gather in order to perform the damage calculation.

Discuss the different approaches to damage calculations.

What calculation approach would you take in your example?

 

 

answer:

Major Categories of Commercial Damages

Antitrust damages, arising out of monopolization

Loss of Profits due to breach of contract, or other business defeciencies

Loss of Goodwill

Loss due to infringement of intellectual property

Loss of Profits due to Breach of Contract.

Loss of Profits may be due to decline in sales after the occurence of an event. A Jerkish fall in sales may not be sufficient to justify damages. There should be declining trend to justify the damages. Thus a non execution of a contract or a delayed exceution with reduced level of activity is a case where loss of Profits take place due to breach of contract. Some sales contracts may not be fulfilled at all. This is another example of breach of contract.

Further on the costs side also there may be breaches of contract which leads to reduced profits. Faulty goods delivered under contract, and further not replaced or partly replaced can reduce profits and increased costs bya significant figure. There are cases where businesses have had to shut down due to incidents indicating total loss.

The following records may be procured to perform damage calculation

Sales History before Incident

Sales History at other locations after Incident

Sales Projections before incident

Actual sales data after incident

Sales data of comparable business after incident

Variable costs before and after incident

Different approaches to Calculation of Damages

Out of Pocket Approach. Actual value received v/s actual value conveyed. This approach totally ignores opportunity cost

Benefit of the Bargain approach. Damages are not only the moneys invested, but also the interest, lost profits, reduction in investment.

loss of profits by direct method, refer agreement

loss of profits by yardstick, comparing other business or industry average

But for method comparing budgeted with actual.

A combination of Benefit of Bargain approach, and But for method would be the best method to calculate the losses.

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