WEALTH GROUNDING FOUNDATIONAL PART Allan noticed that the term "emergency fiand" is frequently mentioned in various articles in the local newspapers. Allan mentioned that his monthly expenses total about S5,000 and he has the Savings Account Balancc (Allan $10.000 $8,500 Fixed Deposit Accont (Allan) WEALTH PROTECTION TAX PLANNING Allan has been operating a small consultancy business as a sole proprietor for the past 2 years. He has been deriving profits but has not paid any tax on this income He estimates the income tax payable for the 2 ycars of assessment to be $5,000 and $6.000 respectively Allan, is employed as a finance director. He is given an annual leave passagc allowance of $9,000 and his annual salary is S120,000. Allan's employer decided to provide Allan with 2 rehun passages to Hawaii costing $11,000 instead of annual Icave passage allowancc of S9,000. Allan wrote a book for which he received a Royalty income in 2017. A breakdown of Royalty income and expenses is shown below: Royalty Income Related Expenscs Incurred Printing and Stationary Advertisement and Publicity SS8.600 Legal Fees S$52,520 SS15,500 SS2.480 Allan has 2 other properties in his name, which have been rented out. Property 2 was vacant for 3 months. The details of the properties are as follows: Description Rental Income Property Tax Property 1 Property 2 SS4,500 per month SS3,600 per month SS330 per 01th | S$280 per month Major Renovation Repairs Maintenance Fees SS190 per month S$130 per month Nil SS1,600 SS2,800 SS15,000 Wall Painting Allan was giren an Option to purchasc 100,000 shares at SS2.30 each of his company mder the Staff Sharc Option Scheme. He excrcised the option and later sold the shares. The details of the share prices and the relevant dates are given belowa Datc Description Market Price 5 October 2016 Option Exerse Price 12 July 201017 S$2.30 S$3.50 S$5.00 Option Exercised 19 August 2017 Sold the Shares WEALTH ACCUMULATION RETIREMENT PLANNING Allan wants to retire in 15 years at age 65. He has determined that he will need a capital sun of $2,354,000 at that time to provide his retirement income. He presently has a retirement plan with a curent amount of $350,000 to which he will add $26,000 per year. Allan assumes that his pre- retirement and post-retirement rates of return will be 8%. and that inflation will average 3%. He expects to live to at least age 80 but wants to use age 95 for all calculations. QUESTIONS 1) Explain why Allan should monitor his budget 2) Explain what Allan's Personal Balance Sheet represents. How might a series of successive balances be used in evaluating his financial situation? 3) Demonstrate how Allan is able to check if he has adequate emergency fiunds. 4) Name the TWO primary ratios that are used to help determine the appropriate level of Allan's debt. For these two primary ratios, what are the ratio levels that indicate acceptable levels of debt? WEALTH GROUNDING FOUNDATIONAL PART Allan noticed that the term "emergency fiand" is frequently mentioned in various articles in the local newspapers. Allan mentioned that his monthly expenses total about S5,000 and he has the Savings Account Balancc (Allan $10.000 $8,500 Fixed Deposit Accont (Allan) WEALTH PROTECTION TAX PLANNING Allan has been operating a small consultancy business as a sole proprietor for the past 2 years. He has been deriving profits but has not paid any tax on this income He estimates the income tax payable for the 2 ycars of assessment to be $5,000 and $6.000 respectively Allan, is employed as a finance director. He is given an annual leave passagc allowance of $9,000 and his annual salary is S120,000. Allan's employer decided to provide Allan with 2 rehun passages to Hawaii costing $11,000 instead of annual Icave passage allowancc of S9,000. Allan wrote a book for which he received a Royalty income in 2017. A breakdown of Royalty income and expenses is shown below: Royalty Income Related Expenscs Incurred Printing and Stationary Advertisement and Publicity SS8.600 Legal Fees S$52,520 SS15,500 SS2.480 Allan has 2 other properties in his name, which have been rented out. Property 2 was vacant for 3 months. The details of the properties are as follows: Description Rental Income Property Tax Property 1 Property 2 SS4,500 per month SS3,600 per month SS330 per 01th | S$280 per month Major Renovation Repairs Maintenance Fees SS190 per month S$130 per month Nil SS1,600 SS2,800 SS15,000 Wall Painting Allan was giren an Option to purchasc 100,000 shares at SS2.30 each of his company mder the Staff Sharc Option Scheme. He excrcised the option and later sold the shares. The details of the share prices and the relevant dates are given belowa Datc Description Market Price 5 October 2016 Option Exerse Price 12 July 201017 S$2.30 S$3.50 S$5.00 Option Exercised 19 August 2017 Sold the Shares WEALTH ACCUMULATION RETIREMENT PLANNING Allan wants to retire in 15 years at age 65. He has determined that he will need a capital sun of $2,354,000 at that time to provide his retirement income. He presently has a retirement plan with a curent amount of $350,000 to which he will add $26,000 per year. Allan assumes that his pre- retirement and post-retirement rates of return will be 8%. and that inflation will average 3%. He expects to live to at least age 80 but wants to use age 95 for all calculations. QUESTIONS 1) Explain why Allan should monitor his budget 2) Explain what Allan's Personal Balance Sheet represents. How might a series of successive balances be used in evaluating his financial situation? 3) Demonstrate how Allan is able to check if he has adequate emergency fiunds. 4) Name the TWO primary ratios that are used to help determine the appropriate level of Allan's debt. For these two primary ratios, what are the ratio levels that indicate acceptable levels of debt