Question and details are in the attached file. Unfortunately deadline for this is 1st April

COR167e Managing Your Personal Finances Tutor-Marked Assignment 02 January 2016 Presentation Copyright 2016 SIM University COR167e Tutor-Marked Assignment TUTOR-MARKED ASSIGNMENT 02 This tutor-marked assignment is worth 40% of the final mark for COR167e Managing Your Personal Finances. The cut-off date for this assignment is 2359hrs on 1 April 2016. _________________________________________________________________________________ Additional instructions: Submit your solution document in the form of a single MS Word file on or before the cut-off date shown above. You will need to indicate clearly on the front page your name, student ID, course title and assignment number. The websites will help facilitate your research. However, you will be penalized if you simply cut & paste information from these websites in your assignment. ___________________________________________________________________________ This TMA assesses the following learning outcomes: Interpret the concept of time value of money Demonstrate the critical aspects of Wealth Protection through Insurance Planning Develop the key elements in Wealth accumulation through Investment Planning and for Retirement Use the key aspects of Wealth Preservation through Tax Planning and Estate Planning SIM UNIVERSITY Tutor-Marked Assignment - Page 2 of 8 COR167e Tutor-Marked Assignment CASE STUDY Keaton and Alyssa provided their combined Cash Flow and Balanced Sheet Statement for the year 2015 to your analysis as they understand that you are currently doing a course on Managing Your Personal Finance. Cash Flow Statement for Keaton's Family For the Period 1.1.15 to 31.12.15 INFLOWS Active Income Gross Salary and Bonus before Employee CPF Contribution Interest from Fixed Deposit TOTAL INFLOWS OUTFLOWS Savings Fixed Outflows aCar Loan Repayment VARIABLE OUTFLOWS Tax Food Transportation School Fees Grooming Entertainment/vacation Medical / dental care Utilities/ household expenses Alyssa's mother allowance Gifts Miscellaneous TOTAL OUTFLOWS Surplus/Deficit SIM UNIVERSITY Keaton Alyssa $120,000.00 Total $120,000.00 $1,200.00 $210.00 $1,410.00 $121,410.00 $36,000.00 $7,000.00 $43,000.00 $9,912.00 Nil $9,912.00 $1,630.00 $8,500.00 $3,700.00 $9,800.00 $6,600.00 $7,800.00 $2,500.00 $6,500.00 $7,000.00 $5,200.00 $3,200.00 $890.00 $3,600.00 $2,800.00 $4,500.00 $2,300.00 $5,300.00 $2,100.00 $2,300.00 $8,000.00 $2,800.00 $2,300.00 $2,520.00 $12,100.00 $6,500.00 $14,300.00 $8,900.00 $13,100.00 $4,600.00 $8,800.00 $15,000.00 $8,000.00 $5,500.00 $152,232.00 -$30,822.00 Tutor-Marked Assignment - Page 3 of 8 COR167e Tutor-Marked Assignment NET WORTH for Keaton's Family - As at 31 Dec 2015 Assets Liabilities Liquid Assets Renovation Loan Savings Account(Alyssa) $60,000 Credit card Loan Fixed Deposits (Keaton) $120,000 Sub-Total Amount $180,000 Invested Assets CPF OA (Keaton) CPF SA (Keaton) CPF OA (Alyssa) CPF SA (Alyssa) Unit Trust (Keaton) Shares (Alyssa) Policy surrender Value (Alyssa) $150,000 Sub-Total Amount $38,000 $2,350 $363,800 $58,000 $26,000 $27,000 $12,800 $55,000 $35,000 L-Term Liabilities Residential Property Car Loan $1,010,748 $67,000 Sub-Total Amount $1,118,098 Personal Use Assets Residential Property Car (Market Value) $1,395,000 $56,000 Sub-Total Amount $1,451,000 NetWorth Total Asset $1,994,800 Total Liab & Networth $876,702 $1,994,800 For additional guidance, you have gathered more information from Keaton and Alyssa about their financial situation in 2015 as below:FAMILY SITUATION Keaton 37 and Alyssa 35 have been married for 10 years. They have three children: a son, Peter (age 9), 2 daughters, Patricia (age 8) and Pauline (age 5). Pauline suffers from cerebral palsy, a medical condition that requires her to be wheel chair bound. Her current education is managed by the Spastic Children's Association School (SCAS). They do not intend to have any more children. EMPLOYMENT STATUS Keaton is a self-employed Architectural Designer. For the last 5 years, he draws an average annual gross income of $120,000 and he managed to save about $3,000 per month since 2010. SIM UNIVERSITY Tutor-Marked Assignment - Page 4 of 8 COR167e Tutor-Marked Assignment Alyssa, born in Australia, became a Singapore Permanent Resident in 2005. She works for a foreign company based in Singapore and half of her employment income 1 is paid to her in Australia. She earns an annual gross income of $64,800 with a 1 month bonus. RESIDENTIAL PROPERTY Keaton, Alyssa and their 3 children as well as Alyssa's parents live in freehold property at River Valley Road. Keaton is a single owner of the property. The freehold residential property was purchased for $1,280,000 seven years ago. He financed his residential property with his deposit and initial instalments through a combination of CPF and Cash. He still has 23 years to repay his outstanding mortgage of $1,010,748, which is currently charged with an interest of 2.6% per annum monthly rest. Based on Keaton's monthly CPF contribution, he is able to finance his monthly mortgage of $4099 from his Ordinary Account contribution 2. The property is currently valued at $1,395,000. They are also clearing an outstanding renovation loan of $38,000 for their residential property as at 31 Dec 2015. Keaton and Alyssa have one other investment properties in Singapore. It is registered under Joint Tenancy agreement PROPERTY 969 Sq Ft Two Condo in Bt. Timah DATE OF PURCHASE PURCHASE PRICE May 2012 $850,000 MARKET VALUE $770,000 LOAN AMOUNT $650,000 RENTAL AMOUNT $3,050 The rental earning from the invested property is redirected to offset the monthly cash loan mortgage of $2,602 per month. They borrow the maximum loan offered by the bank for the invested property. Keaton has mentioned to Alyssa in several occasions that she will inherit the house if he dies. INVESTED ASSETS Being a relatively conservative investor, Keaton has invested $55,000 in a Unit Trust comprising of 60% in global bonds and the balance in an assortment of regional equities. Keaton did not received dividend in 2015. Alyssa has invested $35,000 in some blue chip stocks listed in SGX, which she purchased over the past few years. Unfortunately, the stock market has not been performing very well and the current value for all her stocks now stands at $27,500. Alyssa has indicated that the stocks are to be used for long-term planning. Alyssa received dividends of $689 in 2015 1 2 Assuming Singapore Dollars and Australian Dollars are at parity The student will need to check with the relevant website what the contribution level for CPF Ordinary Account will be reference www.iras.gov.sg SIM UNIVERSITY Tutor-Marked Assignment - Page 5 of 8 COR167e Tutor-Marked Assignment CAR Keaton has serviced 4 years of a 10 year car loan. His loan balance of $56,000 is currently costing 2% p.a. monthly rest, resulting in him having to finance a monthly instalment of $826.02. The car is currently valued at $67,000. LED TV Keaton's recent acquisition of a large screen LED TV has resulted in an outstanding Credit Card balance of $2,350 RISK MANAGEMENT Alyssa has put in place a mortgage reducing term insurance to cover for a value of $760,000 for the next 18 years at a discount rate of 2% p.a. (feature of the policy is that it pays the outstanding balance of the loan at the time of the claim). Her mortgage is also paid for in the event of Critical Illness or Total and Permanent Disability. Premium for the mortgage protection insurance is $3,359p.a. Having recently discovered the presence of her breast lumps, Alyssa decides to quickly buy a $1,500,000 Term plan with $600,000 Critical Illness benefits to provide for her children in the event she contracts and/or dies from cancer. Her term plan which covers her until age 99 costs her $14,604 each year. For fear of being uninsurable, she does not reveal in the medical questionaire in the insurance application forms that she discovered breast lumps and is awaiting a medical examination. Her policy has been approved by the insurer. About 8 years ago, Alyssa bought a $150,000 5-year limited-pay whole life plan. The plan covers her for $50,000 additional Critical Illness. The annual premium for her plan was $19,500p.a. The Cash Value of her plan is $48,750. ESTATE PLANNING To date, both Keaton and Alyssa do not have a Will and have not effected any recent CPF nomination. Keaton last nominated his mother as the beneficiary for his CPF monies before he was married to Alyssa 10 years ago. Alyssa had nominated Keaton and her children as beneficiaries to her 3 insurance policies. Question 1 Prepare for Keaton & Alyssa (combined) the following: (a) \"Cash Flow Statement for the period 1 Jan 2015 to 31 December 2015 (from the facts given in the case study and some of your own research, determine the missing figures for Employment Income, Employer's CPF contribution, Dividend & Rental Income as well as the portion of CPF and Cash used for the housing instalment). (10 marks) SIM UNIVERSITY Tutor-Marked Assignment - Page 6 of 8 COR167e Tutor-Marked Assignment (b) Using the Keaton and Alyssa's Balance Sheet Statement given in the case study as the starting point, you are to re-construct Keaton and Alyssa's Balance Sheet Statement for 2015 by incorporating some of the additional information provided. (10 marks) (c) Based on the Cash Flow and Balance Sheet Statement constructed from (a) and (b), you are to compute the following financial ratios and explain to Keaton and Alyssa their financial health: S/No 1 2 3 4 5 Financial Ratio Basic Liquidity Ratio Debt Service Ratio Liquid-Assets to Net Worth Ratio Net Investment Assets to Net Worth Ratio Debt-to- Asset Ratio 2015 (15 marks) Question 2 (a) Alyssa did not think that she would need to pay income tax for her employment income as half of her income is paid to her in Australia. Would Alyssa need to account to IRAS3 for her employment income? Explain the rationale behind your answer. (5 marks) (b) Alyssa wishes to claim for the following Income Tax Relief for the Year of Assessment 2016. You are to compute the actual amount of relief and explain to them their entitled tax reliefs as follows: (i) Alyssa wishes to claim Qualifying Child Relief for her 3 Children. (9 marks) (ii) Alyssa wishes to claim Working Mother's Child Relief for her 3 Children. (9 marks) (c) Alyssa is interested to know the maximum amount she can contribute into her Supplementary Retirement Scheme Account as well as topped her mother's CPF Retirement Account in order to claim for income tax relief (5 marks) (d) Assuming Alyssa used the tax savings of $2,000 per annum from part (c) above to set up a special education fund account for Pauline, who suffers from cerebral palsy. How much will Alyssa have in the account after 13 years if it earns 8% compound annual interest? (5 marks) SIM UNIVERSITY Tutor-Marked Assignment - Page 7 of 8 COR167e Tutor-Marked Assignment Question 3 (a) Which insurance policies will pay out, and how much will be paid, if Alyssa was to claim from her insurers. (i) Contract a Major Illness. (6 marks) (ii) 1 year after contracting a major illness, passes away. (6 marks) (b) Upon her Death, Alyssa wishes to give her assets shown below to the stated beneficiaries. You are to advise her the most effective way of planning her estates. (i) CPF Account Balance to her sister. (5 marks) (ii) Savings and Shares to charity. (5 marks) (iii) Insurance Policies' Proceeds to Keaton and Pauline. (5 marks) (c) Alyssa also wishes to transfer her investment property at Bukit Timah to Pauline. Based on this information, you are to advise Alyssa of the likely estate planning issues that may surface if Keaton dies before her. (5 marks) ----- END OF COR167e TMA02 ----- SIM UNIVERSITY Tutor-Marked Assignment - Page 8 of 8