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Activity: Case Study Please study the following case study carefully and answer...

May 15, 2024

Solution by Steps

step 1

Calculate Mr. Raju's total annual income

step 2

Annual Income: RM300,000

step 3

Annual Bonus: 2 months' salary =

\frac{300,000}{12} \times 2 = 50,000

step 4

Total Annual Income = RM300,000 + RM50,000 = RM350,000

step 5

Calculate Mr. Raju's total annual living expenses

step 6

Sum of all listed expenses:

step 7

Food: RM24,000

step 8

Clothing: RM8,000

step 9

Donations: RM2,000

step 10

Utilities: RM12,000

step 11

School Expenses: RM10,000

step 12

Tuition Expenses: RM8,000

step 13

Car Expenses: RM12,000

step 14

Entertainment: RM8,000

step 15

Holiday: RM20,000

step 16

Maid: RM21,600

step 17

Total Annual Living Expenses = RM125,600

step 18

Calculate Mr. Raju's net income

step 19

Net Income = Total Annual Income - Total Annual Living Expenses

step 20

Net Income = RM350,000 - RM125,600 = RM224,400

Answer

Mr. Raju's net income for the end year of 2022 is RM224,400.

Key Concept

Income Statement

Explanation

An income statement summarizes the total income and expenses over a period, showing the net income.

Question 3: Build a net worth statement for Mr. Raju for the end year of 2022.

step 1

Calculate Mr. Raju's total assets

step 2

House: RM650,000

step 3

Shares in Berjaya Berhad: RM48,000

step 4

Mutual Fund (Asian Fund): RM22,000

step 5

Apartment: RM400,000

step 6

Savings Account: RM820,000

step 7

Fixed Deposit: RM200,000

step 8

Current Account: RM10,000

step 9

Total Assets = RM650,000 + RM48,000 + RM22,000 + RM400,000 + RM820,000 + RM200,000 + RM10,000 = RM2,150,000

step 10

Calculate Mr. Raju's total liabilities

step 11

Personal Loan: RM20,000

step 12

Housing Loan: RM608,000

step 13

Apartment Loan: RM300,000

step 14

Credit Card: RM5,000

step 15

Car Loan: RM135,000

step 16

Total Liabilities = RM20,000 + RM608,000 + RM300,000 + RM5,000 + RM135,000 = RM1,068,000

step 17

Calculate Mr. Raju's net worth

step 18

Net Worth = Total Assets - Total Liabilities

step 19

Net Worth = RM2,150,000 - RM1,068,000 = RM1,082,000

Answer

Mr. Raju's net worth for the end year of 2022 is RM1,082,000.

Key Concept

Net Worth Statement

Explanation

A net worth statement summarizes the total assets and liabilities, showing the net worth.

Question 4: Calculate basic liquidity ratio, liquid assets to net worth ratio, savings ratio, and debt service ratio.

step 1

Calculate the basic liquidity ratio

step 2

Basic Liquidity Ratio =

\frac{\text{Cash/Cash Equivalents}}{\text{Monthly Expenses}}

step 3

Cash/Cash Equivalents = Savings Account + Fixed Deposit + Current Account = RM820,000 + RM200,000 + RM10,000 = RM1,030,000

step 4

Monthly Expenses = Total Annual Living Expenses / 12 = RM125,600 / 12 = RM10,466.67

step 5

Basic Liquidity Ratio = RM1,030,000 / RM10,466.67 ≈ 98.4

step 6

Calculate the liquid assets to net worth ratio

step 7

Liquid Assets to Net Worth Ratio =

\frac{\text{Liquid Assets}}{\text{Net Worth}}

step 8

Liquid Assets = Cash/Cash Equivalents = RM1,030,000

step 9

Net Worth = RM1,082,000

step 10

Liquid Assets to Net Worth Ratio = RM1,030,000 / RM1,082,000 ≈ 0.95

step 11

Calculate the savings ratio

step 12

Savings Ratio =

\frac{\text{Savings}}{\text{Gross Income}}

step 13

Savings = Net Income = RM224,400

step 14

Gross Income = Total Annual Income = RM350,000

step 15

Savings Ratio = RM224,400 / RM350,000 ≈ 0.64

step 16

Calculate the debt service ratio

step 17

Debt Service Ratio =

\frac{\text{Total Annual Loan Repayments}}{\text{Annual Take Home Pay}}

step 18

Total Annual Loan Repayments = Personal Loan + Housing Loan + Apartment Loan + Credit Card + Car Loan = RM20,000 + RM608,000 + RM300,000 + RM5,000 + RM135,000 = RM1,068,000

step 19

Annual Take Home Pay = Total Annual Income = RM350,000

step 20

Debt Service Ratio = RM1,068,000 / RM350,000 ≈ 3.05

Answer

Basic Liquidity Ratio: 98.4, Liquid Assets to Net Worth Ratio: 0.95, Savings Ratio: 0.64, Debt Service Ratio: 3.05

Key Concept

Financial Ratios

Explanation

Financial ratios help assess the financial health and stability of an individual by comparing different financial metrics.