Abhishek Sawant Solutions Q1 A. Income Tax Liability of Abhishek Answer Gross Receipts from the profession 2350000 Less: Allowable Expenditures 250000 Net Profit 2100000 Less: Deductions U/S 80C 100000 80E: Not Allowable since not made out of Chargeble income 0 Taxable Income 2000000 Income Tax on 2000000 0-110000 0 110001-150000 4000 150001-250000 20000 250001-2000000 525000 Total Tax 549000 S/C 54900 Tax after S/C 603900 E.Cess 18117 Total Tax 622017 Tax Payable Or 622020 Living Expenses 800000 Total Cash in flow 577980 Q2 FDR should be gifted in the name of Abhishek s wife Chhaya otherwise in both other options interest would be clubed back in Abhishek's income only Q3 Q4 Springing Power of Attorney This is a professional requirement under Practice Guidelines of FPSB Answer Q5 On 01-01-08 1000 139216 Add: T/C 2% 20 2784 Total Credit 1020 142000 Minimum Due on 01-03-08 (5%) 51 7100 Bal After Min Due 969 134900 after intt on 31-1-08 1004 139757 after intt on 29-02-08 1040 144788 after intt on 31-03-08 1077 150000 150000/(1077/1000) or 139216 139215.7001 Q6 Abhishek's liquid assets= Cash in hand 125000 family's monthly expenses (800000/12)= 66666.66667 Expanded Liquidity Ratio (125000/66667)= 1.875 or 1.87
Q7 Expenses required for Chhaya= 600000 Current Age 35 Life Expectancy 75 Risk/Interest Free Rate 6% Inflation Rate 5% Inflation adjusted rate of return 1.06/1.05 1.00952381 0.9524% pa 600000*((1-(1/1.009524)^40)/.009524)*1.009524 Corpus required 20069350 Q8 If Abhishek takes term insurance policy then annual premium= (2.18*100*100)= 21800 Maturity Value in term plan= Nil If Abhishek takes endowment policy then annual premium= (4.36*100*100)= 43600 Maturity Value in endowment plan (43600*20)= 872000 So effective annual investment portion in endowment plan (43600-21800)= 21800 PMT= 21800 MV= 872000 Term= 20 Mode= Begin So R= 6.77% pa Risk free rate of return= 6% pa So Plan 2 is advisable due to its IRR Q9 No, he should not take the policy from back date in term plan as if you take the policy from back date you are paying the premium for the period for which your life risk has already passed out. Q10 Term=(65-40) 25 Equity portion 60% @15% Gold ETF 20% @10% Bond/Bank FDR 20% @8% So Effective Rate of return in 25 years= Equity=.60*1.15^25= 19.75137157 Gold=.20*1.1^25= 2.166941189 Bank FD=.2*1.08^25= 1.369695039 23.2880078 Eff Rate= 23.2880078^(1/25) 1.134188641 13.4189% Or 13.42%
Q11 Current living Expenses 800000 Rate of Inflation 5.00% Rate of expenses increment 5.00% Years till retirement 25 Years during retirement 10 Pre-Retirement rate of return 13% Post retirement rate of return 6% Estate leaving at the end of life 2500000 13790038.42 ( value of 25 lakh rupees at the end of Abhishek's life) Insurance annuity starting age 45 Insurance annuity ending age 50 Annuity Amount (per annum) 200000 After retirement expenses reduction=inflation Step One: Expenses figure at retirement (65)=800000*1+(.05+.05)^25= 8667765 Step Two: corpus required at retirement= -75323519 PV=? FV= 13790038.42 Pmt= 8667765 Mode= Begin Rate of Return= 6% NPER= 10 Step Three: FV of insurance annuity at retirement= 10410490 first annuity at 45 till 65 200000*1.13^20 2304618 Second Annuity at 46 till 65 200000*1.13^19 2039485 Third Annuity at 47 till 65 200000*1.13^18 1804854 Fourth Annuity at 48 till 65 200000*1.13^17 1597216 Fifth Annuity at 49 till 65 200000*1.13^16 1413465 Sixth Annuity at 50 till 65 200000*1.13^15 1250854 10410490 Balance courpus to be accumulated= -64913028 Monthly investment required= 417,126 FV= 64913028 PV=0 0 PMT=?? NPER=25 25 ROI=13% 13 Mode=End End
Q12 Account opening date 31/03/2003 Maturity date 31/03/2018 Bal as on 31/03/08 350000 Rate of intt= 8% Contributions left= 10 Maximum permissible contribution= 70000 Extension Blocks= 5 years total extension= 3 times After extension maturity on= 31/03/2033 Pre extension maturity amount= PV= 350000 ROI= 8% PMT= 70000 NPER= 10 Mode= End FV= -1,769,683.12 After extension maturity amount= PV= 1769683 ROI= 8% PMT= 0 NPER= 15 Mode= End -5,613,733.75 FV= Rate of Appr Time FV= Cottage Current Price= 300000 12% 25 Years 5100019.322 So MV of PPF account=56.13 lakh/yes Q13 None of the above Q14 20.04% {(97.75)(1+r)^1}*0.98=115 hence r=20.04 Q15 70% in PPF+30% in Bank FDR since equity investment has a higher SD of 15% therefor from risk adjusted return point it is not advisable. Maximum permissible investment in PPF is at Rs.70000 currently. So 70+30 is advisable.
Solutions Satish Gupta PM Exempt** Right 1 Q.16 1. Basic salary 30000 360000 2. DA (50% to be included for SRB) 11000 5500 66000 3. Bonus/Commission 7000 84000 4. Medical Re-imb 1000 1000 0 ** For the purpose of RFA calculation Total 510000 =510000*15% 76500 Add= 10% of Furniture Cost 10000 86500 Total Q.17 FDR fixed on 01-04-2005 500000 Intt as on 30-09-2005 20000 520000 Intt as on 31-03-2006 20800 540800 Intt as on 30-09-2006 21632 562432 Intt as on 31-03-2007 22497 584929 Intt as on 30-09-2007 23397 608326 Intt as on 31-03-2008 24333 632660 Intt Includable in Satish's Income as his mother expired on 30/9/07, 24333/4 6083 aftterwards 1-10-07 to 31-3-09 period interest is to be divided equally in 4 parts as Satish has 3 other siblings Answer Q.18 FDR fixed on 01-04-2006 500000 Intt as on 30-09-2006 21875 521875 Intt as on 31-03-2007 22832 544707 Intt as on 30-09-2007 23831 568538 Intt as on 31-03-2008 24874 593411 Interest 2007-08 48704 TDS @10.3% 5017 Q.19 Rupee Value of Current Rs. 1000 after 10 year @7% pa inflation= FV=1000 I= 7% N=10 508.35 If 1000=508.35 then 1000= 1000/.508349= 1967.15 Q. 20 PV 17500 FV 35000 NPER 4+(1/12) Rate 18.50% Q.21 Loan Principal Rs. 3 lakh Term 36 Months EMI Rs. 9,610 So the ROI= 9.50% IF ROI= 9.50% then term= 30 PV= 3 lakh PMT= 9,610 So the FV= 56,091 So the payment on 31/03/2009=56091+9610 65701
Q22 Since the insurance company allows a 15 days grace period for the renewal, Satish can win his case on the ground of Estoppal Q.23 Total Sum Assured 500000.00 Bonus (12000*20) 240000.00 740000.00 Less SB= 100000*3 300000.00 MV 440000.00 Q.24 There is no life insurance need for Satish Q.25 Satish contribution to the EPF 780 Employer contribution 8.33 in EPS 3.67 in EPF Monthly Total Contribution 239 1019 Years in Job 15 So Monthly Contribution= 1019 Rate= (9%/12) 0.0075 Term= (15*12)= 180 Months Mv= 1019*(((1.0075)^180-1)/.0075)= So the MV 385425 Q.26 Option 1 Monthly pension offered 18000 Retirement tenure 15 years Rate of interest 8% So the PV of his pension 1883531 Option 2 Total Due Pension=(18000*12*15)= 3240000 Total Commuted Value=76% 2462400 Tax free Value=1/3 820800 Taxable= 1641600 Tax=30+10+3%=33.99% 557979.84 After Tax 1083620.16 Total In hand pension=d279+d283 1904420.16 Option 3 VRS Amount 2600000 Tax=33.99% 883740 After Tax 1716260 So option 2 is suitable
Q27 MIS MATURITY ORIGINAL 600000 Bonus 60000 Last month interest 4000 Total MV 664000 Q.28 Option 1 Option 2 Year Sale Comm Intt Total Comm Only -2000000-2000000 1 500000 25000 120000 145000 200000 2 550000 27500 120000 147500 220000 3 605000 30250 120000 150250 242000 4 665500 33275 120000 153275 266200 5 732050 36603 120000 156603 292820 6 805255 40263 120000 160263 322102 7 885781 44289 120000 164289 354312 8 974359 48718 120000 168718 389743 9 1071794 53590 120000 173590 428718 10 1178974 58949 120000 2178949 471590 IRR= 7.8776% 8.1340% Q29 Bond Issue Price 8500 MV= 20000 LTCG= 11500 LTCG Tax=@10% 1150 After Tax Gain= 10350 CAGR= 18850/8500= 2.217647059 2.21764^.1-1 0.082902217 CAGR= 8.29% pa