In: Accounting
Efram and Sofia, both aged 24, are newlyweds. Their after-tax
salaries are $55,000 and $49,000, respectively. They have been
renting a flat since they started work but have decided to buy a
house. Their decision has been made easier because Efram’s parents
said that when they retire at age 65 in one year’s time they would
withdraw $40,000 from their combined superannuation funds and give
the money to Efram and Sofia to help them to buy a house. When they
approached the bank for a loan they had to provide details of their
income, expenses, assets and liabilities to the lending officer.
The items provided for their personal balance sheet were:
Assets Bank account $45,000 Furniture/personal effects $8,000
Managed investment fund $20,000 Cars $16,000 Superannuation — Efram
$26,000 Superannuation — Sofia $21,000
Liabilities Credit cards $5,500 Car loans $3,000
They also advise the lending officer that their monthly
commitments are: • rent $1,280 • car loans $290 They would prefer
not to cash in their managed investment fund at present as the
value has fallen by 8% over the last 2 months. They have instructed
the fund manager to reinvest the distributions rather than receive
them in cash. Their intention is to leave the investment to
accumulate to meet the education expenses of the children they hope
to have in the future.
They anticipate paying off their credit card debt in full next
month and they would also have paid off the car loans in the next
12 months. They also advise the lending officer that their current
rate of household expenses (not including the rent and repayments)
is about $2,400 per month.
a. Prepare personal finance statements and ratio analysis for their
current situation. b. Prepare personal finance statements and ratio
analysis for their estimated situation when they receive the gift
from Efram’s parents and purchase a house valued at $380,000 with
repayments based on $2,200 per month. c. Discuss the impact on
their savings and debt service ratio if Sofia was to cease working
for a period of time to have children.
Ans . A Since they are having a debt service ratio of 17.20 they are having capability to serve 17.20 times of their liability.
Ans B
Since they are having a debt service ratio of 2.14 they are having capability to serve 2.14 times of their liability of loan .
Ans C IF Sofia goes for maternity leave for 9 months they will not be able to pay monthly EMI of 2200 per month..