Wealth Management – Tax Planning And Retirement Planning

(a) Mr T’s Budget Monitoring and Personal Balance Sheet

Mr T, a resident of Singapore, is engaged in the consultancy business. In addition to that he has some other sources of income. All together the current investment and earning capacity of the client is healthy. But the investment portfolios and the quantum of expenditure are inadequate. The income form Royalty and Rental income are quite substantial but the savings are not done properly, the budget is to be reviewed because to increase the amount of savings (Kasuma et al., 2017).

The potential needs of the asses to review the budget as there are many deficiencies regarding the investment plan and the margin or return. In the given case, Mr T has invested in much option from where income are derived. However, the return in comparison of the investment are not adequate. The budget is to review to diversify the investment and income generation.

(a)(ii):

Analysing the balance sheet of Mr T it is being identified that, major asset that Mr T holds laid with the savings and retire fund. The other substantial portion of the assets are located in two properties. For evaluating the position of the financial statement of an assesse at first the liquidity is to be considered (Chwieroth, 2015). The liquidity is the ability to pay certain debts or obligations. In the given case the Assesse liquidity is high as the investment in the retirement fund and savings as well as fixed deposit investments are substantial to pay the desired obligations.

(b)(i):

___“FALSE”____ A person’s investment assets to net worth ratio should logically decrease, as he/she grows older.

_____“FALSE”_____ Cash management helps you to manage your cash on a day-to-day basis; hence, it has no relation with long-term financial goals.

_____“TRUE”_____ The rule of “72” says that, at 10% interest, it takes a little more than 7 years to double your money.

 _______“TRUE”___ Liabilities are normally reported at their current fair market value.

 _____“TRUE”_____ If you can cut your spending by 5% that would be equivalent to getting a 5% raise.

______“FALSE”____ When budgeting monthly income, you should exclude one-off items such as a 3- month year-end bonus.

______“FALSE”____ When a person’s cash-flow statement shows a surplus, this means that funds are ready to be used.

 _____“TRUE”_____ No one financial ratio tells the whole story; hence, we need to look at a few ratios to get an overall picture of an individual’s financial health.

(b) True or False statements on Personal Balance Sheets and Cash Flow Statements

(b)(ii):

Mr T can state the funds are adequate by calculating some key financial ratios. The ratios provide some key beneficial analysis of the financial statements such as debt coverage, current ratio, acid test ration, and others. The ratios depicts the financial viability of the client. In case of any sudden needs of the assesse or any investment requirement for speculative income or sudden requirement to pay off any emergency cost such as medical expense or any kinds of loss the ability of the assesse is determined by current ratios and the quick ratios. As this is the difference between the current assets and the current liabilities (Deng, A., & Chen, 2017).

(c):

The two identified primary ratios are Debt Equity ratio, and Acid Test Ratio,

Debt equity ratio is the measure of the total debt of the assesse in comparison of the total equity, this ratios shows the financial ability to repaid the dues and other obligations. The Debt/ Equity will be favourable if it is more than 2. If is lower than 2, then the financial viability will be considered as weak (Haldane, 2014).

Another key ratio is acid test ration, this is the measure of the short term loan or debt payment ability. The Acid test ratio of quick ratio will be considered 3 to be good, higher will be the value priories the financial position of the client.

Answer to question 2:

Question 2:a	Penalty
	Particulars	2016	2017
	Due	5000	6000
	Interest 5% ( 6 month)	250	300
	additional ( 1 % per month)	900	720
	Total Penalty		1620
Question 2: b (i)	Calculate for Mr T’s Section 10(1)(b)
	Particulars	Amount
	Annual Salary	120000
	Leave Passage Allowance	9000
	Taxable	9000
Question 2: b (ii)	Calculate Mr T’s new Section 10(1)(b)
	2 return passages to UK	22000
	Taxable	22000	22000
Question 2: C	Compute Mr T’s tax liabilities for the Royalty income.
	Particulars	Amounts	Amount
	Royalty Income	52520
	Total Income		52520
	Less: Expense
	Printing Stationary	15500
	Advertisement	8600
	Legal Fee	2480	26580
	Net Income		25940
Question 2:  c (ii)	Income Form Property for the Assessment year 2017
	Particulars	Property 1	Property 2
	Period of rental	12	12
	Less: Vacancy	0	3
	Period of rent	12	9
	Monthly Rent	4500	3600
	Gross Rent	54000	32400
	Less: Property Tax	3960	2520
	Net Rental Income	50040	29880
	Deduction Allowed
	Less: 15 % deemed Rental Income	8100	4860
	Taxable Income	41940	25020
Question 2:	Calculation the amount of Share Option benefit assessable on Mr T.
	Date	Option Price	Market Price	Number of share	Total
	05-Oct-16	2.3		100000	0
	12-Oct-17	2.3	3.5	100000	120000
	19-Aug-17	3.5	5	100000	150000
	Net Benefit				270000
answer questions 3b(i)	Retirement Benefits
	particulars		Amount
	Requirement	$ 2,354,000.00
	Current Value	$  -350,000.00
	Annuity	$    -26,000.00
	Interest rate	8%
	Period	15.00
	Future value	$ 1,816,214.15
	Inflation	$ 3,667,455.30
	Monthly Pension receivable
	investment value	$ 1,816,214.15
	Period	30
	Rate	8%
	Pension	-110.2576714

Answer to question 3:

1. When additional savings are needed to meet one’s retirement objectives, the additional aggregate amount needed for one’s retirement fund should be based on which of the following?

Answer:

B The future value of inflation-adjusted additional savings.

1. The amount that must be saved annually for retirement would logically be reduced by

Answer:

An increase in the rate of inflation

1. To calculate the future value of income-producing investments in the retirement planning calculations, the most CORRECT interest factor to use is the

Answer:

Rate of return

1. Which of the following statements concerning inflation is/are CORRECT?

Answer:

C Both I and II

1. Which of the following are features of Supplementary Retirement Scheme?

Answer:

B I and II only.

1. The following statement(s) on the CPF is/are correct EXCEPT:

Answer:

A I only

1. Which of the following statement(s) about Eldershield and IDAPE is (are) TRUE?

Answer:

B I and III only.

1. When considering taking on an insurance policy for retirement purposes, which of the following factors is most applicable?

Answer:

D All the above.

Answer questions 3b (i):

The return of ten retirement fund at the end of the term is less than the desirable amount because of the rate of inflation that is expected to grow 3% per Annam respectively. The major difference that has occurred only because of inflation. The rate of interest has affected the desired sum (Li et al., 2016).

Answer questions 3b(ii):

 The expected income that T will received after the retirement is

Retirement Benefits
particulars
Requirement	$            23,54,000.00
Current Value	$             -3,50,000.00
Annuity	$                 -26,000.00
Interest rate	0.08
Period	15.00
Future value	$            18,16,214.15

 The rate of inflation is decided by having the higher value as the rate in cumulatively increased , the Future Value of the retirement fund is expected at the rate of 8% per Annum. As the return on investment are low might affect in the following:

1. Low return: because of the inflation the return will be inadequate to met.
2. Low Benefits: as the assured sum is assured and receivable at a future date then the benefits that is desirable at the present time is higher than the future benefits.
3. Medical Allowance: as getting older attracts the medical expenses therefore the future pensions are not considered to be effective to meet the medical cost.
4. The expectancy: the assesse expects to live for 90 years term and for that reason Mr T is losing some substantial portion of the funds .
5. Answer to Question 1(a):

1. A I and II only.

1.  C The insurer will reimburse the insured only to the extent of the insured’s financial loss.

1. C Risk shifting or transfer

1. C They usually replace all of the disabled insured’s lost earnings

1. C Add an inflation protection rider.

1. B Life annuity with refund features

1. A Insureds who discontinue their insurance contribute to a surplus fund

1. B Retiring an instalment debt obligation at death.
2. Answer to 1(b)(i):

(c) Primary Ratios for determining appropriate levels of debt

Uberimmae Fidei:  It as a legal agreement of the parties to the contract with the obligation to perform the duties in good faith.

 Uberimmae Fidei, is a Latin fords which signifies the ‘Utmost Good Faith’. the insurance contracts are the example of the  Uberimmae Fidei, contracts as the policy holder pays insurance premium to the insurer for availing the risk share agreement among them self’s.

In insurance sector, the policyholder or the policy applicant knows more therefore the policyholder must voluntarily disclose all the relevant facts for fixation of the premium by the insurer. It is necessary for both the parities to the contract to provide the benefits and fulfilled the desired obligations (Epstein, 2018).

Answer to question 1(b)(ii):

The main features of the Uberimmae Fidei are that all the parties to the contacts must have initiated all the material facts that are require to be disclosed in good faith. This contract bounds both the parties to the contract to perform the duties such as notifying the condition and the profanities of the risk insured and the chances of getting affected reasons and others.

In case if the policyholder has not disclosed any material fact that is already known by the holders and not disclosed to the insurer. In that case the insures has suffered loss for that then in that case the insurer either deny the claim, and if the claim has already paid by the insurer then in that case the insurer may sue the policy holder in fraud case and for damages.

Answer to question 1 C:

A waiver of premium is the premium that is paid by rider if the policy holder become disabled. This is an optional benefit on many term life insurance policies and might be available for  on permanent forms of insurance coverage.

 total permanent disability benefits means if the policy holder become permanently disable to perform any work with Zero chances of curability then in that case the insurer take the responsibility to provide the assured sum of living.

Answer to question 1 (d):

• Contract a major illness:

The contract to major illness is the benefits if the insurance policy that will provide the benefits of the plan in case of the policy holder gets affected by any critical illness.

The benefits that will be enjoyed by Poh Eng are:

Major Illness
Policy	Sum Assured	Benefits
5-year limited-premium whole life plan.	50000
Term plan with $500,000 Critical Illness benefit	500000
Total		550000

(ii). If the policy holder pass away within the one year , then  in that case the total amount of maturity will be provided by the insurer to the nominee of the policy holder or the legal relative.

Whole life policy
Policy	Sum Assured	Benefits
5-year limited-premium whole life plan.	70000
Term plan with $500,000 Critical Illness benefit	600000
Total		670000

(d) Tax Requirements and Calculations for Sir T’s Income

___ “TRUE _ The owner of a convertible bond has the option to become a shareholder.

 ___ “TRUE ___ The expected return of a portfolio return is a weighted average of the component expected return.

___ “FALSE” ___ A large reverse split will reduce the number of shareholders.

____ “FALSE” __ A warrant gives its owner the right to sell shares back to the company at a predetermined price.

 __ “FALSE” ____ A retail food chain is a cyclic stock.

 ___ “TRUE ___ A forward PE is sometimes less than a trailing PE.

 _____ “TRUE _ If a firm’s asset turnover increases, its return on assets also increases, assuming everything else remains constant.

 __ “FALSE” ____ A stock that breaks through support level gives a bullish signal.

 ____ “FALSE” __ Increased margin buying has historically been associated with recently rising markets. ____ “TRUE __ Small firms tend to outperform those with larger capitalization.

Answer to Question 3:

Answer to question  3(a):

The statement does not hols good as the policy holder has the right to nominate the Nomee of the policy independently. In that case the policy holder Poh Eng does not needs any written representation to revoke the insurance nominations.

Answer to question 3(b):

1. The Special Needs Savings Scheme is the policy that the parents purchase for the security of the special needs that the siblings will require for upbringing.
2. Parents can increase the accumulation of the SNSS funds by increasing the amount of systematic investment plan. Higher will be the sum assured the premium be increased accordingly.
3. Answer to Question 3 C:

1. The CPF of central Provident Fund in the investment that the one employee makes for the retirement benefits that will be enjoyed after the retirement when the policy holder will not be able to earn, or might earn low income as compared to the needs. Major portion of the funs swill be used to secure the needs of the retirement period, it is advisable the 2/3 of the assets will be secured into CPF funds (Vernimmen et al., 2014).
2. Saving and security are the investment that one make to earn extra income for any sudden future requirements. The investment in these funds will be not be huge or minimal. If it will be beneficial to invest 16.67 % of the total assets in savings and security.

• Insurance policy in the older age cost more as compared to earlier stages. In that case a substantial portion of the funds are required to be allotted in case purchasing the insurance policy or to pay off the Premiums.

Particulars	Weight	Amount
Available Funds		670000
CPF	0.666667	446666.7
Savings and share to charity	0.166667	111666.7
insurance policy	0.166667	111666.7
Total	1	670000

Answer to question 3 d:

From the above analysis it is advisable to Poh Eng can initiate that the major portion of the available funds are to be secured for the payment of the loan outstanding of the housing loans. The next step is to be invested for NSSS for securing the future of the children. Additional investment are to be made in retirement or CPF funds for the retirement benefits of the old mother of the Assesse.

Reference

Chwieroth, J. M. (2015). Managing and transforming policy stigmas in international finance: Emerging markets and controlling capital inflows after the crisis. Review of International Political Economy, 22(1), 44-76.

Deng, A., & Chen, Z. (2017). Managing Online Supply Chain finance Credit Risk of “Asymmetric Information”. World Journal of Research and Review, 4, 29-32.

Epstein, M. J. (2018). Making sustainability work: Best practices in managing and measuring corporate social, environmental and economic impacts. Routledge.

Freeman, R. (2014). Managing open systems. Routledge.

Haldane, A. G. (2014). Managing global finance as a system. Bank of England, Speech at the Maxwell Fry Annual Global Finance Lecture, Birmingham University, 29.

Kasuma, J., Said, S. S., Yacob, Y., Kassim, S. A., Sarkawi, I. M., & Shahrinaz, I. (2017). Managing Risk, Networking and Managing Finance and the Successful of Sarawak Bumiputera Entrepreneur. Advanced Science Letters, 23(8), 7557-7561.

Li, L., Liu, N., & Zheng, X. (2016). DOES THE PROVINCE-MANAGING-COUNTY REFORM PROMOTE THE GROWTH OF COUNTY FINANCE AND ECONOMY IN CHINA? AN EMPIRICAL CASE STUDY ON HENAN PROVINCE 1. Public Finance and Management, 16(1), 25.

Vernimmen, P., Quiry, P., Dallocchio, M., Le Fur, Y., & Salvi, A. (2014). Corporate finance: theory and practice. John Wiley & Sons.