Cash Flow Statements Tax Calculations and Balance Sheet for the 3 Financial Years - Case Study Example

CASE STUDY Name: Course: Instructor: Institution: Location Case Study Question one Cash flow statements tax calculations and balance sheet for the 3 financial years ending 30 June 2015 - 2017 Family balance sheet Financial year ending June 2015 Assets $ $ Family house 620,000 Boat 20,000 Car Jenny 35,000 Car Jerry 12,000 House contents 50,000 Commonwealth Bank shares 53,000 Term deposit with Bundoora 165,000 Savings account with Bundoora 26,000 Superannuation funds (combined) 330,000 Total 1,290,000 Liabilities Family home mortgagee 250,000 Personal car loan 16,000 Credit card debt 6,000 Total 272,000 Net worth 1,018,000 The family’s Tax Calculation Financial year ending June 2015 $ $ Assessable income Jerry’s Salary 105,000 Jenny’s Salary 50,000 Fully franked dividend 2,120 Savings account 269 Term deposits 4,455 Conservative fund 10,140 Capital stable fund 4,750 Employer Superannuation contribution (15% tax deduction) 9975 Employer Superannuation contribution (15% tax deduction) 4750 Less Allowable deductions Work related expenses 2,500 Total allowable deductions 2,500 Taxable income 188,959 Gross tax payable 74,455.88 Add Medicare levy (2%) 3,779.18 Net tax payable 78,235.06 Family's Cash flow statement Financial year ending 2015 Income $ $ Jenny’s Salary 50,000 Jerry’s Salary 105,000 Fully franked dividend 2,120 Savings account 269 Conservative fund 10,140 capital stable fund 4,750 Term deposits 4,455 Employer Superannuation contribution (15% tax deduction) 9975 215,633 Employer Superannuation contribution (15% tax deduction) 4750 Total 188,959 Less tax payable 78,235.06 Net income 110,706 Expenses Mortgage and loan payments 29,500 Work related expenses 2,500 Insurance 3,000 Household expenses 25,800 Private education expenses 17,000 Utilities 4,200 Entertainment 8,000 Travel and holidays 7,000 Motor vehicle expenses 8,500 Sundries 2,000 Total 107,500 Surplus 3,200 Family balance sheet Financial year ending June 2016 Assets $ $ Family house 663,400 Boat 19,400 Car Jenny 35,000 Car Jerry 12,000 House contents 48,500 Commonwealth Bank shares 52,500 Term deposit with Bundoora 165,000 Savings account with Bundoora 26788 Superannuation funds (combined) 362,230 Total 1,395,58 Liabilities Family home mortgagee 224,600 Personal car loan 11,900 Credit card debt 6,000 Total 242,500 Net worth 1,152,658 The family’s Tax Calculation Financial year ending June 2016 $ $ Assessable income Jerry’s Salary 108,150 Jenny’s Termination payment 15,000 Fully franked dividend 2,729.5 Savings account 269 Term deposits 4,455 conservative fund 8,619 capital stable fund 5,622.75 Less Allowable deductions Work related expenses 2,500 Total allowable deductions 2,500 Taxable income 173,585.8 Gross tax payable 52,173.45 Add Medicare levy (2%) 3,471.716 Net tax payable 55,645.15 Family's Cash flow statement Financial year ending 2016 Income $ $ Jenny’s Salary 50,000 Jerry’s Salary 105,000 Fully franked dividend 2,400 Savings account 980 conservative fund 8,619 capital stable fund 5,622.75 Term deposits 250 Total 176,085.8 Less tax payable 55,645 Net income 120,440.8 Expenses Mortgage and loan payments 29,500 Work related expenses 2,500 Insurance 3,000 Household expenses 25,800 Private education expenses 17,000 Utilities 4,200 Entertainment 8,000 Travel and holidays 7,000 Motor vehicle expenses 8,500 Sundries 2,000 Total 107,500 Surplus 12,940 Family balance sheet Financial year ending June 2017 Assets $ $ Family house 709,838 Boat 18,818 Car Jenny 35,000 Car Jerry 12,000 House contents 47,045 Commonwealth Bank shares 57,319 Term deposit with Bundoora 181,912 Savings account with Bundoora 27592 Superannuation funds (combined) 346500 Total 1,436,024 Liabilities Family home mortgagee 199,200 Personal car loan 7,800 Credit card debt 6,000 Total 213,000 Net worth 1,,223,024 The family’s Tax Calculation Financial year ending June 2017 $ $ Assessable income Jerry’s Salary 105,000 Jenny’s Termination payment 15,000 Fully franked dividend 2,729.5 Savings account 269 Term deposits 4,455 conservative fund 8,619 capital stable fund 5,622.75 Less Allowable deductions Work related expenses 2,500 Total allowable deductions 2,500 Taxable income 173,585.8 Gross tax payable 52,173.45 Add Medicare levy (2%) 3,471.716 Net tax payable 55,645.15 Family's Cash flow statement Financial year ending 2017 Income $ $ Jenny’s Salary 50,000 Jerry’s Salary 105,000 Fully franked dividend 2,400 Savings account 980 conservative fund 8,619 capital stable fund 5,622.75 Term deposits 250 Total 176,085.8 Less tax payable 55,645 Net income 120,440.8 Expenses Mortgage and loan payments 29,500 Work related expenses 2,500 Insurance 3,000 Household expenses 25,800 Private education expenses 17,000 Utilities 4,200 Entertainment 8,000 Travel and holidays 7,000 Motor vehicle expenses 8,500 Sundries 2,000 Total 107,500 Surplus 12,940 Question Two Year Age Salary Opening super balance Add employer super balance Less 15% contributions tax Add net earning Closing super balance 2015 45 50,000 135,000 4,750 4,037 6,812 145849 2016 46 N/A 145849 N/A N/A N/A 145849 2017 47 30,000 145849 2,850 2,422 7265 153114 2018 48 30,900 153114 2,935 2,494 7624 163232 2019 49 31,827 163232 3,023 2,569 125 165801 2020 50 32,781 165801 3,114 2,646 129 173925 2021 51 33,764 173925 3,207 2,725 133 185305 2022 52 34,776 185305 3,303 2,807 9217 197329 2023 53 35,819 197329 3.402 2,891 9810 210030 2024 54 36,893 210030 3,504 2,978 10441 223538 2025 55 37,999 223538 3,609 3,067 11103 237708 2026 56 39,138 237708 3,718 3,223 11805 252736 2027 57 40,312 252736 3,829 3,254 12543 268533 2028 58 41,521 268533 3,944 3,352 13322 285207 2029 59 42,766 285207 4,062 3,452 14144 302803 2030 60 44,048 302803 4,184 3,556 15011 321363 Year Age Salary Opening super balance Add employer super balance Less 15% contributions tax Add net earning (before tax) Closing super balance 2015 45 105,000 195,000 9,975 8,478 113,478 203,478 2016 46 108,150 203,478 10,274 8,733 116,883 212,212 2017 47 111,374 212,212 10,582 8,995 120,369 221,207 2018 48 114,715 221,207 10,897 9,262 125,594 230,469 2019 49 118,156 230,469 11,224 9,540 129,380 240,009 2020 50 121,700 240,009 11,561 9,826 113,261 249,835 2021 51 125,351 249,835 11,908 10,121 137,259 259,956 2022 52 129,111 259,956 12,265 10,425 141,376 270,381 2023 53 132,984 270,381 12,633 10,738 145,617 281,119 2024 54 136,973 281,119 13,012 11,060 149,985 292,179 2025 55 141,082 292,179 13,402 11,391 154,484 303,570 2026 56 145,314 303,570 13,804 11,733 159,118 315,303 2027 57 149,673 315,303 14,218 12,085 163,891 327,388 2028 58 154,163 327,388 14,645 12,448 168,808 339,836 2029 59 158,787 339,836 15,084 12,821 173,871 352,657 2030 60 163,550 352,657 15,537 13,206 179,087 365,657 Year Age Opening super balance Less pension withdrawal Add net earnings Closing super balance 2030 60 687,020 629,020 32709 661729 2031 61 661,729 603,729 31393 635112 2032 62 635,112 577,122 30010 607122 2033 63 607,122 549,122 28554 577676 2034 64 577,676 519,676 27023 546699 2035 65 546,669 488,699 25412 514111 2036 66 514,111 456,111 23717 479828 2037 67 479,828 421,828 21935 443763 2038 68 443,763 385,763 20,059 405882 2039 69 405,882 347,882 18,086 365,968 2040 70 365,968 307,968 16,014 323982 2041 71 323,982 265,982 13,831 279,813 2042 72 279,813 221,813 11,534 233,347 2043 73 233,347 175,347 9,118 184,465 2044 74 184,465 124,465 6,576 131,041 2045 75 131,041 73,041 3798 76,839 2056 76 76,839 18,839 979 19,818 Current asset allocation Name of investment Cash Fixed interest Property Australian shares International shares Total Family home 620,000 620,000 Jerry’s car 12,000 12,000 Jenny’s car 35,000 35,000 House contents 50,000 50,000 Boat 20,000 20,000 Commonwealth Bank shares 53,000 53,000 Term deposit with Bundoora 165,000 165,000 Savings account with Bundoora 26,000 26,000 Superannuation -conservative fund 195,000 195,000 Superannuation -capital stable fund 135,000 135,000 Total of asset class in $ terms 521,000 737,000 53,000 1,311,000 Total of asset class in % terms 39.7% 56,21% 4.42% 100% Investment Strategy and risk profile The aim of a risk profile is to critically evaluate a clients risk philosophy, based on three different level namely conservative, balanced and aggressive levels. It examines the level of risk that is acceptable to the client. In my analysis I while putting their objectives in mind I make the best suggestion for the family. The components of analysis include previous investment experience, investment knowledge, objectives, and investment experience. The above table shows a summery of your investment portfolio and the total amount of assets you currently own. From the table we can see that moist of your assets are placed property and savings with a very small portion in shares. Your investments relies too much on two areas, I would recommend you diversify your portfolio. Your portfolio should focus on securing your children’s future and retirement. A re-allocation of the funds in to buying more shares and any future funds to be placed in the conservative and stable funds of the family Investment theory The best and most widely practiced principle is that of diversification. It will reduce the family’s risk and improve their long term returns Fixed interest and cash generally have low risks but with low returns while shares and properties generate very high returns but come with relatively high risks. The investment should be split in to all the four strategies. To ensure that the clients needs and risk threshold is known, the family should fill the risk evaluation questionnaire placed in the appendix. The reallocation should include both current and future assets. The family should consider investing more into both intentional and domestic shares. Although the initial risks will be very high the long term rewards will be better and will secure the couple retirement. Share and property provide relatively high returns but the client may take more risks and fixed interest and cash may generate a quite low amount of income with lower risks. Recommended strategies 1. Superannuation I suggest you move the funds in the savings account in to conservative fund I suggest Jerry makes a $20,000 salary sacrifice into his conservative fund while the wife makes a salary sacrifice into her capital stable fund I suggest that the family should buy a life insurance for the family I suggest you combine both super funds into one family fund Details Since the family does not have insurance cover, they should get one for Jerry because is the main breadwinner and in case of death the family will continue without him. Salary sacrificing will allow the couple save more money Benefits of the recommendation The amount of money they pay for both funds will be reduced since they will only have one consolidated fund The insurance will ensure that the family is covered in case of permanent injury or death The sup funds do not fall under Fringe benefits tax that can see the couples income taxed on a high marginal tax rate. The contribution of the employer to the super is taxed at a flat rate of 15% Risks of recommendations The money can be accessed once they reach retirement or 65 years In case of poor economic growth rates or high inflation the couple funds can be significantly affected and ca pose a risk on their retirement plan Volatile market conditions can significantly affect an individuals superannuation account causing a fall in the value of the investments. Reduce current consumption To ensure the family save more money the coupled should consider cutting their current consumption. It is as simple as that to enjoy a better life in the future and to secure their children’s future education the couple must cut their spending habits. The money saved today will be worth much more in the future. The family should stat by cutting their house expenses to a minimum then reduces their holiday and entertainment expenses future. Benefits Reduced consumption will allow the couple to save more for their retirement age It will allow them to spend more on their kid’s education especially private school. Risks The family will be forced to make sacrifices, which may not go down well with the family members The family will be forced tor educe on their entertainment and holidays which give s a chance to reflect and take their mind off the busy work schedule and reduce stress Read More