Year of Assessment

WEALTH GROUNDING – FOUNDATIONAL PART
Mr T noticed that the term “emergency fund” is frequently mentioned in various articles in the local newspapers. Mr T mentioned that his monthly expenses total about $5,750 and he has the following:

WEALTH PROTECTION – TAX PLANNING
Mr T 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 years of assessment to be $5,000 and $6,000 respectively.
Mr T, a Singaporean, is employed as a finance director. He is given an annual leave passage allowance of $9,000 and his annual salary is $120,000.
Mr T’s employer decided to provide Mr T with 2 return passages to UK costing $11,000 instead of annual leave passage allowance of $9,000.
Mr T wrote a book for which he received a Royalty income in 2017. A breakdown of Royalty income and expenses is shown below:

Mr T 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:

Mr T was given an Option to purchase 100,000 shares at S$2.30 each of his company under the Staff Share Option Scheme. He exercised the option and later sold the shares. The details of the share prices and the relevant dates are given below:

WEALTH ACCUMULATION – RETIREMENT PLANNING
Mr T wants to retire in 15 years at age 65. He has determined that he will need a capital sum of $2,354,000 at that time to provide his retirement income. He presently has a retirement plan with a current amount of $350,000 to which he will add $26,000 per year. Mr T 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.

Question 1: WEALTH GROUNDING – FOUNDATIONAL PART (34 marks)
(a)(i) Explain why Mr T should monitor his budget.    (5 marks)
(a)(ii) Explain what Mr T’s Personal Balance Sheet represents. How might a series of successive balances be used in evaluating his financial situation?    (5 marks)
(b)(i) Write “TRUE” or “FALSE” for the following statements with regard to a Personal Balance Sheet or Cash Flow Statement.
__________ A person’s investment assets to net worth ratio should logically decrease, as he/she grows older.
__________ Cash management helps you to manage your cash on a day-to-day basis; hence, it has no relation with long-term financial goals.
__________ The rule of “72” says that, at 10% interest, it takes a little more than 7 years to double your money.
__________ Liabilities are normally reported at their current fair market value.
__________ If you can cut your spending by 5% that would be equivalent to getting a 5% raise.
__________ When budgeting monthly income, you should exclude one-off items such as a 3-month year-end bonus.
__________ When a person’s cash-flow statement shows a surplus, this means that funds are ready to be used.
__________ No one financial ratio tells the whole story; hence, we need to look at a few ratios to get an overall picture of an individual’s financial health.    (8 marks)
(b)(ii) Demonstrate how Mr T is able to check if he has adequate emergency funds.    (8 marks)
(c) Name the TWO primary ratios that are used to help determine the appropriate level of Mr T’s debt. For these two primary ratios, what are the ratio levels that indicate acceptable levels of debt?    (8 marks)
Question 2: WEALTH PROTECTION – TAX PLANNING (34 marks)
(a) Describe to Mr T the relevant tax requirements and the possible penalties that the Comptroller of Income Tax can impose on him. Advise him whether he has any recourse.    (4 marks)
(b)(i) Calculate for Mr T’s Section 10(1)(b) income based on annual leave passage of $9,000.    (4 marks)
(b)(ii) Calculate Mr T’s new Section 10(1)(b) income based on 2 return passage to UK of $11,000.    (6 marks)
(c)(i) Compute Mr T’s tax liabilities for the Royalty income.    (6 marks)
(c)(ii) Determine Mr T’s income from the two properties for the Year of Assessment 2017.    (8 marks)
(d) Calculate the amount of Share Option benefit assessable on Mr T.    (6 marks)