Q1 (a) Cash Flow Statement for the period 1 Jan 2015 to 31 December 2015
The missing/modified figures (as shown in yellow in the cash flow statement) are calculated as follows:
Employment income,
Keaton,
Given,
Gross Salary and Bonus= $120,000.00
Alyssa,
Given total salary and bonus=$64,800
Half paid in Aus and half in Singapore,
Thus her Salary and bonus paid in Singapore=$32,400
Employer’s CPF contribution,
Keaton- 37 % of 120,000=$44400
Alyssa- 20% of $32,400=$6480
Dividend and rental income
Dividend – Keaton-No dividend in 2015
Alyssa, $689 in 2015
Rental income
Keaton and Alyssa combined rental income for property in Singapore registered under joint tenancy agreement is $3,050 per month or $36600 for the year.
The portion of CPF and cash used for the housing installment is as mentioned below.
Total housing installment =$4099
Keaton:
Total monthly income=$10,000
Since he is within the 35-45 year age limit, the OA CPF allocation rate is 21%
OA allocation amount = 21% of $10,000=$2100
Therefore monthly CPF contribution to housing is $2100,
While Cash contribution=$4099-$2100=$1999
Thus annual CPF contribution is $25200
Annual Cash contribution is $23988
Mortgage cash payment for investment property= $2,602 per month or $31224
Thus there is a net surplus of $58,523.
Q1 (b)
The additional information to be incorporated and the resultant assets and net worth figures are shown in yellow in the modified balance sheet or net worth statement as below.
Q1 (c) The financial ratios based on the Cash flow and Balance sheet statement constructed from (a) and (b) are calculated as follows:
Total Liquid Assets as per the balance sheet = $180,000
Total Annual expenses=$183,456
Total monthly expenses=$15,288
Basic Liquidity ratio=Liquid Assets/Monthly Expenses
Basic liquidity ratio=$180,000/$15,288=11.77
Thus Keaton’s family has just about 12 months’ expenses handy with them.
While the total disposable personal income= $204,690
Debt Service ratio
=Debt payments/disposable personal income
Debt Service Ratio=$80412/$204,690=39 %
Since the ratio is less than 40%, thus Keaton’s family currently has an acceptable level and serviceable level of debt
Total Liquid Assets as per the balance sheet = $180,000
Net worth of the family=$996,702
Liquid Assets to Net worth ratio=
Total Liquid Assets/Total Net worth=180,000/996,702=18 %
As per the current standards and financial experts, a minimum of 15% ratio is good enough for a family or individual to be able to convert the assets into cash for emergency situations. In this case 18% ratio shows that Keaton family has a favorable situation with respect to liquidity. Also, it is not advisable to be too liquid thus Keaton’s family is it an optimum liquidity level.
http://kairosadvisor.com/293/financial-ratio-3-liquid-assets-to-net-worth/
Net investment assets as per the balance sheet=$1,133,800
Net worth= $996,702
Thus Net Investment assets to Net Worth ratio
=Net Investment assets/Net worth=$1,133,800/$996,702=1.13
A high Net investment to net worth ratio shows that the Keaton Family has planned really well for the long term goals like retirement and old age medical contingencies etc.
As per the balance sheet, the total liabilities = $1,768,098
Total Assets= $2,764,800
Debt to Asset ratio=Total Debt or liabilities/Total Assets=$1,768,098/$2,764,800
Debt to Asset ratio=64%
Since as per industry and financial standards a ratio of less than or equal to 50 % is acceptable, in this case, a ratio of 64% shows that a rather high portion of Keaton’s family’s assets are serviced by debts, which is not a very healthy sign and must be improved upon.
Q2a
As per Income tax laws in Singapore, all income derived by an employee from his employment are taxable unless specifically exempted under the income tax act. In this case no such exemption is applicable for the employment income of Alyssa. She is to be treated as resident of Singapore for tax purposes as she resides in Singapore except for temporary absences for her obligations in Australia.
Q2b.
Tax relief for child relief claim
Under this relief, Alyssa is entitled to the QCR (Qualified child relief) for her two children Peter (9) and Patricia (8), while for Pauline(5) she is entitled to the Handicapped Child Relief (HCR) version of the same as she fulfills all the conditions including age, income of child and parental status. The reliefs for the three children are as follows
$4000x2=$8000 (QCR)
$7,500 (HCR)
Thus total relief under this scheme= $15,500
Tax relief for Working Mother’s child relief
Since Alyssa fulfills all the conditions including marital status, employment income status as well as the children qualifying for QCR/HCR, thus she is eligible for the relief for her children under this scheme in the amounts as mentioned below.
Mother’s total earned income in this case is $39,779
Total relief amount under WMCR =Relief amount for 1st child (Peter) + Relief amount for 2nd child (Patricia) +Relief amount for III rd child (Pauline)
=15% of mother’s earned income + 20% of mother’s earned income+25% of mother’s earned income
=60% of mother’s earned income=60% of $39,779= $23867.4
Q2c.
The maximum amount that can be contributed under the Supplementary retirement Scheme (SRS) by Alyssa as a tax resident is $12,750 while that required to top up her mother’s CPF retirement account is $7000 maximum.
Q2d.
Account Value if compound annual interest is charged which is compounded monthly is calculated as below.
A= P(1+r/n)^nt
Where,
A = the future value of the investment/loan, including interestP = the principal investment amount (the initial deposit or loan amount)r = the annual interest rate (decimal)n = the number of times that interest is compounded per yeart = the number of years the money is invested or borrowed for
In this case,
P=$2000
r= 8%
n=12
t=13
thus A= 2000((1+(8/100)/12))^12x13=5638.93
Thus the amount in the educational account after 13 years will be $5,639.
Q3 a
Contract a major illness
The plan that is most likely to pay out in this case is the five year limited pay whole life plan as the plan was purchased 8 years ago and the premiums have been paid in full. The payout amount in case of the event is $150,000 which she is likely to receive.
The mortgage reducing term insurance to cover the outstanding mortgage liability as well as the balance loan amount at the time of claim is unlikely to payout as it has been recently contracted. The $1,500,000 term plan which provides for critical illness as well as benefits for children in case she dies though seems appropriate for her, but is also unlikely to payout as she has already contracted breast cancer and it will be detected in the medical checkup and make fulfillment of the claim a difficult task.
1 year after contracting a major illness passes away
If she passes away one year from now, the most likely policy that will payout is the mortgage reducing term insurance plan as by that time considerable premium amount will have been paid. Payout will be 2% less the mortgage amount for Alyssa.
The amount is calculated as follows:
A= Mortgage amount – 2% Mortgage amount= $650,000-$13,000=$637,000
The rest of the two policies are unlikely to pay out as they do not qualify for death as an event of claim or will be unlikely because the critical illness shall be detected almost at the beginning.
Q3b
Upon her death, Alyssa wishes to give her assets shown below to the stated beneficiaries. The most effective way of planning her estates are as follows:
CPF Account balance to her sister
Alyssa has not contributed to her mortgages from her CPF account which is a favorable condition as such contributions are not covered under CPF nomination. Also, it seems she has invested a substantial amount in the CPF investment account under the CPFIS-SA and CPFIS-OA. These amounts do not are also not covered under CPF nomination as per rules as they are counted in the estates of the deceased. In case she wants contribute significantly to the nomination account. She must invest less in these accounts and maintain good balance in ordinary CPF OA and SA accounts, which will be granted to her sister as a nominee at Alyssa’s death.
Savings and shares to charity
Alyssa can mention in her will that she wants to donate her savings and shares to charity at her death. As of now she has a savings account worth $60,000, which shall increase with time if there are no contingencies. She currently has shares worth $35,000 to her credit. In case she fails to specifically mention the same, the same shall be distributed as per a fixed set of rules set by law.
Insurance policies proceeds to Keaton and Pauline
Alyssa has already nominated Keaton and Pauline as beneficiaries of her insurance policies and she does not need to put this in her will.
3 c.
Alyssa also wishes to transfer her investment property at Bukit Timah to Pauline. In case Keaton dies before her, she will not have much property left with her as Keaton has nominated her mother as beneficiary of the residential property they are living in. In such a case she might have to sell the property in contingency. However, if she really plans to give Pauline the benefits of substantial assets, she might exclusively nominate Pauline as a beneficiary of her insurance policies.
Works Cited
Chan, Dexter Damien. "Financial Planning Tip #6: Know Your Personal Financial Ratios." 2 may 2010. www.haveplanned.com. Web. 29 March 2016. <http://haveyouplanned.com/financial-planning-tip-6-know-your-personal-financial-ratios/>.
"CPF Contribution and Allocation Rates." 2016. www.cpf.gov.sg. Web. 31 March 2016. <https://www.cpf.gov.sg/Employers/EmployerGuides/employer-guides/paying-cpf-contributions/cpf-contribution-and-allocation-rates#Item588>.
"CPF Contribution and Allocation Rates." 2016. www.cpf.gov.sg. Web. 29 March 2016. <https://www.cpf.gov.sg/Employers/EmployerGuides/employer-guides/paying-cpf-contributions/cpf-contribution-and-allocation-rates#Item588>.
"Income Tax Rates." 2016. www.iras.gov.sg. Web. 29 March 2016. <https://www.iras.gov.sg/irashome/Individuals/Locals/Working-Out-Your-Taxes/Income-Tax-Rates/>.
"Qualifying for Relief- QCR/HCR." 2016. www.iras.gov.sg. Web. 29 March 2016. <https://www.iras.gov.sg/IRASHome/Individuals/Locals/Working-Out-Your-Taxes/Deductions-for-Individuals/Qualifying-Child-Relief--QCR--/-Handicapped-Child-Relief--HCR-/>.
"Working Mother’s Child Relief (WMCR)." 2016. www.iras.gov.sg. Web. 29 March 2016. <https://www.iras.gov.sg/IRASHome/Individuals/Locals/Working-Out-Your-Taxes/Deductions-for-Individuals/Working-Mother-s-Child-Relief--WMCR-/>.
