Research Assignment
FNSFPL502 – FNSFPL508 – FNSINC501
2016
ASSESSMENT EVENT/S Event 2 of 3
ASSESSMENT CONDITIONS/ INSTRUCTIONS TO STUDENTS
Answers must be typed (not hand written).
Assignments to be submitted electronically through SAKAI All parts must be completed
DUE DATE – As detailed on Sakai site
PERFORMANCE MEASURMENT Results will be reported as:- Satisfactory or not yet Satisfactory
Question
Satisfactory or not yet Satisfactory
1
2
3
4
5
6
7
8
9
Plagiarism Declaration
I have read the Student Service Guide under Student Responsibilities to “… not engage in plagiarism, collusion or cheating in any assessment event or examination”.
Student Signature……Rhys Parsonage-Wintle…………Date……………18/02/2017………….
CASE STUDY
Your clients are Daniel Brown and Louise Brown. They have telephoned you to make an appointment for financial advice.
Daniel Brown (45) is an electrician and works for Energy Australia. He is married to
Louise (41). They have two children Oliver (13) and Kel (10).
Daniel receives a salary of $80,000 per annum and Louise has a casual job which pays $29,000 per annum (before tax). Please use current tax rates.
The children attend private school with annual fees of $7,000 each per annum. They also pay living expenses of $40,000 and mortgage payments of $16,000 per annum.
The family home is valued at $700,000 which has a mortgage of $320,000. The repayments on the mortgage are $50 per annum per $1,000 borrowed.
Daniel has superannuation of $80,000 AND Louise $50,000. It is currently invested in a cash option.
Your clients would like advice about holding their insurance within their superannuation.
They also have a car loan of $35,000 which costs $900 per month and a credit card debt of $13,000 which costs $800 per month.
Your clients have adequate Life Insurance which costs $2,200 per annum in addition to their other annual expenditure. They do not have any other personal insurance.
Your clients rarely take sick leave and have accumulated entitlements of four weeks each. They also keep two weeks holiday in case of emergency because their elderly parents live in Perth.
Your clients do not have private health insurance and do not have a will and do not have powers of attorney.
Your clients have advised that they do not require retirement advice at this stage and would like to focus on paying off their mortgage.
Initial Comments – Thank you for your submission.
I have marked the following work and provide feedback below.
You will need to re read the case study and re answer all the questions. You will need to focus on a number of issues that you have not covered. –
They currently spend more money than they earn. Their after tax +Medicare income is approx. $ 60800 and $ 26,000. You will have to work this out correctly
Priorites the expenses to reflect the above- i.e. The most important issue for this family at present is their income is less than their expenses.
The budget should reflect the above analysis. This should clearly show in numbers, that they do not have enough money and are spending more money and getting into further debt.
Re do the balance sheet to reflect clearly – What they owe and what they own. Balance sheet does not show how much money they make or a profit or loss.
Redo question 6 & 7 to reflect that issue of the lack of income to expenses. Re read the case study and focus on the issue of the car loan and the Credit card debt. If these two thigns were realigned to the mortgage – how much would they save – You can work this out from the case study .. (The family home is valued at $700,000 which has a mortgage of $320,000. The repayments on the mortgage are $50 per annum per $1,000 borrowed.
Redo question 8 after you have raddressed the above issues. And Resubmit.
Question 1
Identify eight financial planning issues contained in the case study.
Answer:
Life insurance
Car loan
Credit card
Mortgage
Superannuation
Travelling expenses
Living expenses
Annual fees for children
Question 2
Prioritise the issues identified in question 1 and include reasons for your ranking.
Answer:
Superannuation: Superannuation will get the highest priority as it creates an environment and platform for putting money aside that will provide an income and positive cash flow throughout retirement. Furthermore, superannuation provides taxation incentives for the contributor which in turn reduces the tax burden to the tax payer. Over the years superannuation policy in Australia has become a major institution in domestic capital formation therefore making it important that the couple prioritise the contribution of funds into their superannuation for retirement since their funds will generally be safe and will multiply and grow over that period.
Living expenses: High level of importance to prioritise living expenses as the cost of basic needs is not of a static nature and it frequently changes on an upward trend.
Mortgage: As the interest paid on a mortgage is tax-deductible it is therefore an incentive to Mr. and Mrs. Brown.
Annual fees for children: Mr. and Mrs. Brown have the option of enrolling their children into the government school educational system that will equally provide quality education. This choice would allow them to save and invest that cash that is being paid for the fees of the private educational institute.
Life insurance: After covering the above household expenses it is important that Mr. and Mrs. Brown continue to set aside money into the life insurance as in the worst case scenario(s) it would benefit their children and other parties upon their death or other unlikely event.
Car loan: Mr. and Mrs. Brown have the option of saving for the car rather than making the car loan a priority. Once all other immediate and more important expenses have been covered, then they can budget for the car loan.
Travelling expenses: Mr. and Mrs. Brown should set aside an adequate amount of money for traveling expense when visiting their parents who live long distances from them.
Credit card: Mr. and Mrs. Brown in all instances should avoid using the credit card by all means. In effect, by using the credit card Mr. and Mrs. Brown are spending money they do not have.
Question 3
Prepare a current annual budget for Daniel and Louise with income, tax, medicare levy and expenditure.
Answer:
Daniel and Louise Brown
$
$
Income
109,000.00
Less
Taxes
19,597
Medicare Levy
2,180
21,777
Balance
87,223
Less Expenditure
Fees
14,000.00
Living Expense
40,000.00
Mortgage
16,000.00
Car Loan
10,800.00
Credit Card
9,600.00
Life insurance
2,200.00
92,600.00
Net Balance
(5,377)
Question 4
Prepare a personal balance sheet for Daniel and Louise.
Answer:
Daniel and Louise Brown
Balance sheet
As at 31/1/2016
$
$
Fixed Asset
House
700,000.00
Car
35,000.00
735,000.00
current liabilities
Mortgage Interest
16,000.00
Credit card loan
9,600.00
Car Loan Repayment
10,800.00
36,400.00
Net Assets
698,600.00
Financed By
Car loan balance
24,200.00
Credit card balance
3,400.00
Mortgage
320,000.00
Own capital
356,377.00
Net Loss
(5,377)
698,600.00
Net Assets
698,600.00
Question 5
Add a column to your budget document and calculate the percentage of total expenditure that each expenditure item represents.
Answer:
$
$
%
Income
109,000.00
Less
Taxes
19,597
Medicare Levy
2,180
21,777
Balance
87,223
Less Expenditure
Fees
14,000.00
15%
Living Expense
40,000.00
43%
Mortgage
16,000.00
17%
Car Loan
10,800.00
12%
Credit Card
9,600.00
10%
Life insurance
2,200.00
92,600.00
2%
Net Balance
(5,377)
100
Question 6
Prepare three important observations about the expenditure pattern.
Answer:
The following observations have been made from the percentages of expenditure over total expenditure:
The credit card expenditure has to large a proportion of total expenditure and should be encouraged to Mr. and Mrs. Brown that they should make it a priority to strive to reduce the debt.
Of all expenditure, Living expenses has the largest proportion taking up a total of 43%.
Life insurance has the lowest proportion of expenditure for Mr. and Mrs. Brown.
Question 7
Prepare recommendations for Daniel and Louise that will improve their financial position.
Answer: Ideally Mr. and Mrs. Brown should ensure that they have at least five sources of income as a supplement to their current income. This could be accomplished by engaging in various odd jobs e.g. local community activities and events such as baking cakes and selling to local members of the community. Secondly, Mr. and Mrs. Brown should not only clear their current credit card debt but should also avoid purchasing any future goods or services using the credit card. And finally, it would be advised that Mr. and Mrs. Brown take their children out of the private educational systems and enroll them in to the government system, leaving them with extra money to both save and invest wisely into avenues that will generate at least a 10% return.
Question 8
What advice would you provide to Daniel and Louise about their insurance?
Answer: It would be advised that both Daniel and Louise increase their contribution on their life insurance policy. This will not only secure their future and confidence but they will also receive tax benefits in their taxes. Furthermore, they could also contribute to insurance via their superannuation accounts which would have a more a positive effect on their cash flows.
Question 9
Prepare a new annual budget and balance sheet after the implementation of your recommendations.
Answer:
Daniel and Louise Brown
$
$
Income :
Employment
109,000.00
Business
50,000.00
Investment
1,400.00
total Income
160,400.00
Less
Taxes
19,597
Medicare Levy
2,180
Cost of Sales
26,000.00
47,777
Balance
112,623
Less Expenditure
Fees
–
Living Expense
40,000.00
Mortgage
16,000.00
Car Loan
10,800.00
Credit Card
–
Life insurance
2,200.00
69,000.00
Net Balance
43,623
Daniel and Louise Brown
Projected Balance sheet
As at 31/12/2017
$
$
Fixed Asset
House
700,000.00
Car
35,000.00
Baking Equipment
22,000.00
Investment
14,000.00
771,000.00
current liabilities
Mortgage Interest
16,000.00
Credit card loan
–
Car Loan Repayment
10,800.00
26,800.00
Net Assets
744,200.00
Financed By
Car loan balance
24,200.00
Credit card balance
–
Mortgage
320,000.00
Own capital
356,377.00
Net Cash balance
43,623
Net Assets
744,200.00
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