Accumulated Superannuation
|
Year
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|
Age
|
Salary
|
Opening Super Balance
|
Employer Super Contributions
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Less: 15% Contribution Tax
|
Net Earnings
|
Closing Super Balance
|
|
2016
|
|
|
|
|
|
|
|
|
Jerry
|
45
|
$105,000
|
$195,000
|
$9,975
|
($1,496)
|
$10,140
|
$213,619
|
|
Jenny
|
45
|
$0
|
$135,000
|
$0
|
$0
|
$7,020
|
$142,020
|
|
2017
|
|
|
|
|
|
|
|
|
Jerry
|
46
|
$108,150
|
$213,619
|
$10,274
|
($1,541)
|
$11,108
|
$233,460
|
|
Jenny
|
46
|
$30,000
|
$142,020
|
$2,850
|
($428)
|
$7,385
|
$151,828
|
|
2018
|
|
|
|
|
|
|
|
|
Jerry
|
47
|
$111,395
|
$233,460
|
$10,582
|
($1,587)
|
$12,140
|
$254,595
|
|
Jenny
|
47
|
$30,900
|
$151,828
|
$2,936
|
($440)
|
$7,895
|
$162,218
|
|
2019
|
|
|
|
|
|
|
|
|
Jerry
|
48
|
$114,736
|
$254,595
|
$10,900
|
($1,635)
|
$13,239
|
$277,099
|
|
Jenny
|
48
|
$31,827
|
$162,218
|
$3,024
|
($454)
|
$8,435
|
$173,223
|
|
2020
|
|
|
|
|
|
|
|
|
Jerry
|
49
|
$118,178
|
$277,099
|
$11,227
|
($1,684)
|
$14,409
|
$301,051
|
|
Jenny
|
49
|
$32,782
|
$173,223
|
$3,114
|
($467)
|
$9,008
|
$184,878
|
|
2021
|
|
|
|
|
|
|
|
|
Jerry
|
50
|
$121,724
|
$301,051
|
$11,564
|
($1,735)
|
$15,655
|
$326,535
|
|
Jenny
|
50
|
$33,765
|
$184,878
|
$3,208
|
($481)
|
$9,614
|
$197,218
|
|
2022
|
|
|
|
|
|
|
|
|
Jerry
|
51
|
$125,375
|
$326,535
|
$11,911
|
($1,787)
|
$16,980
|
$353,639
|
|
Jenny
|
51
|
$34,778
|
$197,218
|
$3,304
|
($496)
|
$10,255
|
$210,282
|
|
2023
|
|
|
|
|
|
|
|
|
Jerry
|
52
|
$129,137
|
$353,639
|
$12,268
|
($1,840)
|
$18,389
|
$382,456
|
|
Jenny
|
52
|
$35,822
|
$210,282
|
$3,403
|
($510)
|
$10,935
|
$224,109
|
|
2024
|
|
|
|
|
|
|
|
|
Jerry
|
53
|
$133,011
|
$382,456
|
$12,636
|
($1,895)
|
$19,888
|
$413,084
|
|
Jenny
|
53
|
$36,896
|
$224,109
|
$3,505
|
($526)
|
$11,654
|
$238,742
|
|
2025
|
|
|
|
|
|
|
|
|
Jerry
|
54
|
$137,001
|
$413,084
|
$13,015
|
($1,952)
|
$21,480
|
$445,627
|
|
Jenny
|
54
|
$38,003
|
$238,742
|
$3,610
|
($542)
|
$12,415
|
$254,225
|
|
2026
|
|
|
|
|
|
|
|
|
Jerry
|
55
|
$141,111
|
$445,627
|
$13,406
|
($2,011)
|
$23,173
|
$480,195
|
|
Jenny
|
55
|
$39,143
|
$254,225
|
$3,719
|
($558)
|
$13,220
|
$270,606
|
|
2027
|
|
|
|
|
|
|
|
|
Jerry
|
56
|
$145,345
|
$480,195
|
$13,808
|
($2,071)
|
$24,970
|
$516,901
|
|
Jenny
|
56
|
$40,317
|
$270,606
|
$3,830
|
($575)
|
$14,072
|
$287,933
|
|
2028
|
|
|
|
|
|
|
|
|
Jerry
|
57
|
$149,705
|
$516,901
|
$14,222
|
($2,133)
|
$26,879
|
$555,869
|
|
Jenny
|
57
|
$41,527
|
$287,933
|
$3,945
|
($592)
|
$14,973
|
$306,259
|
|
2029
|
|
|
|
|
|
|
|
|
Jerry
|
58
|
$154,196
|
$555,869
|
$14,649
|
($2,197)
|
$28,905
|
$597,225
|
|
Jenny
|
58
|
$42,773
|
$306,259
|
$4,063
|
($610)
|
$15,925
|
$325,638
|
|
2030
|
|
|
|
|
|
|
|
|
Jerry
|
59
|
$158,822
|
$597,225
|
$15,088
|
($2,263)
|
$31,056
|
$641,106
|
|
Jenny
|
59
|
$44,056
|
$325,638
|
$4,185
|
($628)
|
$16,933
|
$346,129
|
|
2031
|
|
|
|
|
|
|
|
|
Jerry
|
60
|
$163,587
|
$641,106
|
$15,541
|
($2,331)
|
$33,338
|
$687,653
|
|
Jenny
|
60
|
$45,378
|
$346,129
|
$4,311
|
($647)
|
$17,999
|
$367,792
|
Requirement 3.ii:
Superannuation Utilization After Retirement
|
Year
|
Age
|
Opening Super Balance
|
Less: Pension Withdrawal
|
Add: Net Earnings
|
Closing Super Balance
|
|
2032
|
61
|
$367,792
|
($90,362.11)
|
$19,125.17
|
$296,555
|
|
2033
|
62
|
$296,555
|
($90,362.11)
|
$15,420.85
|
$221,614
|
|
2034
|
63
|
$221,614
|
($90,362.11)
|
$11,523.91
|
$142,775
|
|
2035
|
64
|
$142,775
|
($90,362.11)
|
$7,424.32
|
$59,838
|
|
2036
|
65
|
$59,838
|
($90,362.11)
|
$3,111.56
|
($27,413)
|
|
2037
|
66
|
($27,413)
|
($90,362.11)
|
($1,425.47)
|
($119,200)
|
|
2038
|
67
|
($119,200)
|
($90,362.11)
|
($6,198.43)
|
($215,761)
|
|
2039
|
68
|
($215,761)
|
($90,362.11)
|
($11,219.57)
|
($317,343)
|
|
2040
|
69
|
($317,343)
|
($90,362.11)
|
($16,501.82)
|
($424,207)
|
|
2041
|
70
|
($424,207)
|
($90,362.11)
|
($22,058.75)
|
($536,627)
|
|
2042
|
71
|
($536,627)
|
($90,362.11)
|
($27,904.63)
|
($654,894)
|
|
2043
|
72
|
($654,894)
|
($90,362.11)
|
($34,054.50)
|
($779,311)
|
|
2044
|
73
|
($779,311)
|
($90,362.11)
|
($40,524.16)
|
($910,197)
|
|
2045
|
74
|
($910,197)
|
($90,362.11)
|
($47,330.25)
|
($1,047,889)
|
|
2046
|
75
|
($1,047,889)
|
($90,362.11)
|
($54,490.25)
|
($1,192,742)
|
|
2047
|
76
|
($1,192,742)
|
($90,362.11)
|
($62,022.58)
|
($1,345,127)
|
|
2048
|
77
|
($1,345,127)
|
($90,362.11)
|
($69,946.58)
|
($1,505,435)
|
|
2049
|
78
|
($1,505,435)
|
($90,362.11)
|
($78,282.63)
|
($1,674,080)
|
Answer to Requirement 4
Requirement 4.i:
As per the case study of Jenny and Jerry, it can be seen that the couple have major concern to keep pace with inflation. Their desire for tax effectiveness is high. Their slight concern is about the cash access and short-term Volatility Regarding Investment. In addition, the couple is concerned about the investment management and the growth of their investment. As per the analysis of the case study, it can be understood that short-term investment and return is not the matter of concern for them, but their concern is regarding the long-term investment, as their financial aim is to secure their life after the retirement. Their wish of capital growth from the investment and the absence of anxiousness for any capital loss make their profile of risk to be a growth profile of risk. In this kind of investment, they want to invest their money in the growth investment and not in the risk free investment.
Requirement 4.ii:
Asset Allocation
|
Name of Investment
|
Cash
|
Fixed Interest
|
Property
|
Australian Shares
|
International Shares
|
Total
|
|
Superannuation Fund:
|
|
|
|
|
|
|
|
Jerry
|
19500
|
68250
|
29250
|
58500
|
19500
|
195000
|
|
Jenny
|
27000
|
54000
|
13500
|
27000
|
13500
|
135000
|
|
Total Superannuation Fund
|
46500
|
122250
|
42750
|
85500
|
33000
|
330000
|
|
Family Home
|
|
|
620000
|
|
|
620000
|
|
Commonwealth Bank
|
|
|
|
53000
|
|
53000
|
|
Savings Accounts
|
$26,900
|
|
|
|
|
26900
|
|
Term Deposit
|
|
165000
|
|
|
|
165000
|
|
Total Assets (in Dollars)
|
73400
|
287250
|
662750
|
138500
|
33000
|
1194900
|
|
Total of Asset Class (in %)
|
6.14%
|
24.04%
|
55.46%
|
11.59%
|
2.76%
|
100.00%
|
As per the case study of Jenny and Jerry and the prepared financial statement, the couple has allocated their properties in the kind of assets that amounts to 55.46%. Their investment proportions in the fixed interest and cash are 24.04% and 6.14% respectively. The couple also have invested in Australian share and International share on the proportions of 11.595 and 2.76% respectively. According to their allocation strategy, it can be observed that 69.81% of the assets are being invested in the growth market of investment and the rest amount of the money have been invested in the defensive market. It indicates the growth risk profile characteristics of the couple. Regarding to the above question, it can be said that there is a consistency between their asset allocation and risk profile. In this regard, it is crucial for the couple to reduce the investment proportion from properties and invest them in the equity shares in order to get higher return.
Answer to Requirement 5
Requirement 5.i:
As per the evaluation of the financial status of the couple, it can be seen that the return from the cash flow of the company has been massively low. Due to this result, the desired standard of living of the couple shall not be achieved. This is a major obstacle of the couple, as now they need to cut off some of their expenses in order to manage their income.
Another discovered issue in this regard is their poor investment related to their allocation of assets. As per the provided details, the couple has invested a large proportion of their money in the properties; this is not an optimal investment decision as the return from the properties is low. In addition, it has been seen that they have invested a huge amount of money in a single portfolio; due to this, they can face a huge amount of money lost in case of any loss. It is a fact that the couple has a growth risk portfolio and they want to get higher return after their retirement by increasing the amount of investment. Hence, it is utmost important for the couple to change allocation of assets; and they need to decrease the amount of investment in properties and invest the money to the Australian or International shares.
|
Balance Sheet
|
[Year 1]
|
[Year 2]
|
[Year 3]
|
|
Current assets
|
$244,900
|
$252,274
|
$259,903
|
|
Commonwealth Bank Shares
|
$53,000
|
$55,650
|
$58,433
|
|
Savings Account with Bundoora
|
$26,900
|
$27,169
|
$27,440
|
|
Term Deposit with Bundoora
|
$165,000
|
$169,455
|
$174,030
|
|
Fixed assets
|
$1,067,000
|
$782,500
|
$831,101
|
|
Family Home
|
$620,000
|
$663,400
|
$709,838
|
|
Boat
|
$20,000
|
$20,600
|
$21,218
|
|
First Car
|
$35,000
|
$35,000
|
$35,000
|
|
Second Car
|
$12,000
|
$12,000
|
$12,000
|
|
House Contents
|
$50,000
|
$51,500
|
$53,045
|
|
Superannuation conse. Fund
|
$195,000
|
|
|
|
Superannuation cap. Fund
|
$135,000
|
|
|
|
Total assets
|
$1,311,900
|
$1,034,774
|
$1,091,004
|
|
Current/short-term liabilities
|
$6,000
|
$0
|
$0
|
|
Credit cards payable
|
$6,000
|
–
|
$0
|
|
Long-term liabilities
|
$266,000
|
$236,500
|
$207,000
|
|
Family Home
|
$250,000
|
$224,600
|
$199,200
|
|
Personal Car Loan
|
$16,000
|
$11,900
|
$7,800
|
|
Total liabilities
|
$272,000
|
$236,500
|
$207,000
|
|
Net Assets (Net Worth)
|
$1,039,900
|
$798,274
|
$884,004
|
|
Working Capital
|
$238,900
|
$252,274
|
$259,903
|
|
Assumptions:
|
|
|
|
|
All figures are Depreciation Exclusive
|
|
|
|
|
CASH FLOW
|
Year 2016
|
Year 2017
|
Year 2018
|
|
Opening Balance
|
|
$32,675
|
$70,786
|
|
Cash incoming
|
|
|
|
|
Salary
|
$140,275
|
$144,484
|
$148,818
|
|
Interest on term deposit
|
|
$4,455
|
$4,455
|
|
Total incoming
|
$140,275
|
$148,939
|
$153,273
|
|
Cash outgoing
|
|
|
|
|
Mortagage and loan payments
|
$29,500
|
$30,385
|
$31,296
|
|
Work related expenses
|
$2,500
|
$2,575
|
$2,653
|
|
Insurance
|
$3,000
|
$3,090
|
$3,183
|
|
Household ( eg. Food, Cloth)
|
$25,800
|
$26,574
|
$27,372
|
|
Private education expenses
|
$17,000
|
$17,510
|
$18,035
|
|
Utilities (electricity, gas, water)
|
$4,300
|
$4,429
|
$4,562
|
|
Entertainment
|
$8,000
|
$8,240
|
$8,487
|
|
Travel and Holidays
|
$7,000
|
$7,210
|
$7,426
|
|
Motor vehicle expenses
|
$8,500
|
$8,755
|
$9,017
|
|
Sundries
|
$2,000
|
$2,060
|
$2,122
|
|
Total outgoing
|
$107,600
|
$110,828
|
$114,153
|
|
Monthly cash balance
|
$32,675
|
$38,111
|
$39,120
|
|
Closing Balance
|
$32,675
|
$70,786
|
$109,906
|
|
Assumptions:
|
|
|
|
|
All figures are GST inclusive.
|
|
|
Requirement 5.ii:
There are ways by which the firm can diminish the weaknesses and problems faced by them. Four possible strategies can be adopted to eradicate the problems. They are discussed below:
Diversification of Income: The strategy of income diversification is the most optimal strategy for the couple to transform their investment strategies and to allocate their resources effectively to diminish their problems. Their cash flow will be increased with the help of reallocation of the assets and the cash flow will be equivalent with the expected cash return. The presence of efficient financial objectives is the key to income diversification. With the help of income diversification, the couple can change their allocation of assets and they can reduce the amount of investment from the properties to the other assets.
Cost Saving and Maximization of Resources: The objective of the couple is to get income after their retirement. As per the current scenario, the couple is facing investment and asset allocation related problem. In this situation, the strategy of cost saving is an important tool to reduce their travelling and entertainment expenses. With the help of the evaluation of the other expenses, the couple needs to find out the ways by which other unnecessary expenses can be reduced. Resource maximization is possible by the couple to utilize their money in the effective way so that the problems of the couple can be resolved.
Effective Plan for Tax Reduction: The couple should find the effective plans to improve their financial conditions. One of the fundamental ways to increase the income and wealth of the couple is the strategy of reducing the tax payments. One of the major ways to apply the tax reduction strategy is to invest in various governments related investment instruments where the government has wavered tax. The financial condition of the couple can be improved with the investment in these government investment instruments and it will help to stabilize their life style. This total process will lead to the development of their future life style.
Short-Term Investment Supervision: The couple needs to assess and supervise the various aspects of their short-term investment so that the short-term investments issues can be resolved. The couple is not interested in the process of short-term investment as they think that long-term investments will be able to fetch their necessary incomes after their retirement. However, the ignorance in the short-term investments many lead to short-term losses that can have significant effects on the long-term investment of the couple. The supervision on the short-term investment will make the couple able to identify the current investment related market trend and this process will help them to make long-term investment strategies.
It can be seen that the adoption of these above-discusses financial strategies will ne influential to improve the financial condition of the couple.
Answer to Requirement 6
It can be seen that the couple has an idea to buy a investment property to increase their asset base. In the current situation, the buying decision of the investment property is not an optimal decision as they have already invested 55.46% of their income in the properties. As per the recommendation, the couple should not buy the investment property, as the properties do not yield higher return as the aim of the couple is to get higher return after the life of the retirement. Additional investment in the property will lead to negative gearing. The losses from the properties lead to negative yield as it is subject to tax deduction. Hence, the couple will lose their money. Hence, the decision to buy the new property is not optimal.
In the process of the buying of the new property, it can be seen that 20% will be come from the term deposit and the rest will be come from the bank. The total value of the property is $650,000; hence, 80% of the total amount that is $520,000 need to be taken from the bank. As per the information, the couple has existing bank loan for car and house. After the evaluation of the financial position of the couple, it can be seen that the level of cash of them is low and even after the tax benefits, the amount will not be sufficient to repay the loan. With the increase in the loan amount, the cash amount of the couple will be decreased. Hence, they will not be able to repay the loan.
Bibliographies
20 Tax Deductions You Didn’T Know You Could Claim (2017) NewsComAu <https://www.news.com.au/finance/money/tax/20-tax-deductions-you-didnt-know-you-could-claim/news-story/95c0ad39786fb6f2bdc08be7608f455d>
Deductions You Can Claim (2017) Ato.gov.au <https://www.ato.gov.au/Individuals/Income-and-deductions/Deductions-you-can-claim/>
Goldman, M., 2015. FIN 435 Real Estate Investment Analysis.
Income And Deductions (2017) Ato.gov.au <https://www.ato.gov.au/individuals/income-and-deductions/>
PROPERTY, HOW and 8 investment, 8 Steps To Getting Started In Property Investment (2017) realestate.com.au https://www.realestate.com.au/advice/8-steps-to-getting-started-in-property-investment/
