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The University of Queensland *
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BFMB2
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Feb 20, 2024
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DFMB2_AS_v1
Written Assignment Complex Lending and Broking (DFMB2_AS_v1)
Student identification
(
student to complete
)
Please complete the fields shaded grey.
Student number
00000000000
Written Assignment result (
assessor to complete
)
Result — first submission
Parts that must be resubmitted
Result — resubmission (if applicable)
Result summary (
assessor to complete
)
First submission
Resubmission (if required)
Task 1
Task 2
Task 3
Task 4
Task 5
Feedback
(
assessor to complete
)
[insert assessor feedback]
Page 2 of 79
Before you begin
Read everything in this document before you start your written assignment for the Complex Lending and Broking
(DFMB2) subject.
About this document
This document is the written assignment and includes the following:
•
Instructions for completing and submitting this written assignment
•
Section 1: Case Study 1 – Ray Murdoch and Steve Brown – Commercial Equipment Finance
–
Task 1 – Identify the clients’ complex broking needs
–
Task 2 – Develop complex broking options
–
Task 3 – Implement complex loan structures
–
Task 4 – Detailing analysis findings
•
Section 2: Case Study 2 – Bill Smith and John Jones – Commercial Premises Finance
–
Task 1 – Identify the clients’ complex broking needs
–
Task 2 – Prepare complex broking options
–
Task 3 – Implement complex loan structures
–
Task 4 – Detailing analysis findings
•
Section 3: Case Study 3 – Rahn and Deepa Singh – Property Development Finance –
Task 1 – Identify the clients’ complex broking needs
–
Task 2 – Prepare complex broking options
–
Task 3 – Implement complex loan structures
–
Task 4 – Detailing analysis findings
•
Section 4: Short answer questions
–
Task 1 – Complex collateral (specialised security)
–
Task 2 – Complex loan structures
–
Task 3 – Legislation and codes of practice
•
Section 5: Ethical Decision-making Frameworks and Principals
–
Task 1 – Frame the ethical question applicable to the situation
–
Task 2 – Determine ethical response to the situation
–
Task 3 – Develop implementation plan and carry out ethical response to the situation
–
Task 4 – Evaluate the outcomes of the ethical response
How to use the study plan
We recommend that you use the study plan for this subject to help you manage your time to complete the written assignment within your enrolment period. Your study plan is in the KapLearn Complex Lending and Broking
(DFMB2v1) subject room.
Page 3 of 79
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Instructions for completing and submitting this written
assignment
Saving your work
Download this document to your desktop, type your answers in the spaces provided and save your work regularly.
•
Use the template provided, as other formats will not be accepted for this written assignment. •
Name your file as follows: 10829917_DFMB2v1_AS_V1_Submission1
(e.g. 12345678_DFMB2_AS_v1_Submission1).
•
Include your student ID on the first page of the written assignment.
Before you submit your work, please do a spell check and proofread your work to ensure that everything is clear and unambiguous.
The written assignment
The information and data you require to complete this written assignment is presented in the case studies which are located in the subject room. This written assignment covers complex lending and broking and requires you to answer the questions for all five (5) sections. Each of the three (3) case studies focus on a different lending scenario and must be completed.
Word count
The word count shown in each question is indicative only. You will not be penalised for exceeding the suggested word count. Please do not include additional information which is outside the scope of the question.
Page 4 of 79
Additional research
When completing this assignment, assumptions are permitted although they must not
be in conflict with the information provided in the case studies. All assumptions must be noted.
You may be required to conduct your own research in addition to the topic notes provided to source information to answer some of the assignment questions. You may also be required to source additional information from other organisations in the finance industry to find the right products or services to meet your client’s requirements to source indicative interest rates and to calculate any fees and charges that may
be applicable.
Submitting the written assignment
Only Microsoft Office compatible written assignments submitted in the template file will be accepted for marking by Kaplan Professional Education. You need to save and submit this entire document.
Do not remove any sections of the document.
Do not save your completed written assignment as a PDF.
The written assignment must be completed
before submitting it to Kaplan Professional Education. Incomplete written assignments will be returned to you unmarked. The maximum file size is 20MB for the written assignment. Once you submit your written assignment for marking you will be unable to make any further changes to it. You are able to submit your written assignment earlier than the deadline if you are confident you have completed all parts and have prepared a quality submission.
Please refer to the Assignment submission/resubmission instructions (pdf)
in the Assessment section of KapLearn for details on how to submit your written assignment.
Your written assignment must be submitted on or before your due date. Please check KapLearn for the due date.
The written assignment marking process
You have 12 weeks from the date of your enrolment in this subject to submit your completed assignment. If you reach the end of your initial enrolment period and have been deemed Not Yet Competent in one or more assessment items, then an additional four (4) weeks will be granted, provided you attempted all assessment tasks during the initial enrolment period.
Your assessor will mark your written assignment and return it to you in the Complex Lending and Broking (DFMB2_v1) subject room in KapLearn under the ‘Assessment’ tab.
Make a reasonable attempt
You must demonstrate that you have made a reasonable attempt to answer all of the questions in your written assignment. Failure to do so will mean that your assignment will not be accepted for marking; therefore, you will not receive the benefit of feedback on your submission. If you do not meet these requirements, you will be notified. You will then have until your submission deadline to submit your completed
written assignment.
Page 5 of 79
How your written assignment is graded
Assignment tasks are used to determine your ‘competence’ in demonstrating the required knowledge and/or skills for each subject. As a result, you will be graded as either ‘competent’ or ‘not yet competent’.
Your assessor will follow the below process when marking your written assignment:
•
Assess your responses to each question, and sub-parts if applicable, and then determine whether you have demonstrated competence in each question. •
Determine if, on a holistic basis, your responses to the questions have demonstrated overall competence.
You must be deemed competent in all assessment items in order to be awarded your qualification, including demonstrating competency in:
•
all of the exam questions
•
the written and oral assignments.
‘Not yet demonstrated’ and resubmissions
Should sections of your assignment be marked as ‘Not yet demonstrated’ you will be given an additional opportunity to amend your responses so that you can demonstrate your competency to the required level.
You must address the assessor’s feedback in your amended responses. You only need amend those sections
where the assessor has determined you are ‘Not yet demonstrated’. Make changes to your original submission. Use a different text colour for your resubmission
. Your assessor
will be in a better position to gauge the quality and nature of your changes. Ensure you leave your first assessor’s comments in your assignment, so your second assessor can see the instructions that were originally provided for you. Do not change any comments made by a Kaplan assessor.
Units of competency
This written assignment is your opportunity to demonstrate your competency against these units:
Unit code
Unit name
DIPMB2 Complex Lending
and Broking
FNSFMB512
Identify and develop credit options for clients with special financial circumstances
Started and completed
FNSFMB513
Present credit options to clients with special financial circumstances
Started and completed
FNSFMB514
Implement complex loan structures
Started and completed
FNSINC504
Apply ethical frameworks and principles to make and act upon decisions
Started and completed
Note that the written assignment
is required to meet the requirements of the units of competency.
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We are here to help
If you have any questions about this written assignment you can post your query at the ‘Ask your Tutor’ forum in your subject room. You can expect an answer within 24 hours of your posting from one of our technical advisers or student support staff.
Note: Some commercial lenders will not provide interest rate quotes on some commercial products. Often commercial lenders add a risk weighted margin to a base lending rate for certain commercial products. Without conducting an analysis and risk score, they tend to be reluctant to provide quoted interest rates over the phone. For the purposes of the case studies, conduct online research to ascertain approximate interest rates, loan terms available, fees and charges that usually align to the types of products that would be required to execute the client’s transaction. You are allowed to use estimates.
The case studies can be located in the subject room.
Page 7 of 79
Section 1:
Case study 1 — Ray Murdoch and Steve Brown – Commercial Equipment Finance
Task 1 — Identify the clients’ complex broking needs
Business risk can be defined as anything that may impact the financial health of a business, or that could lead to insolvency.
The risk to a business can eventuate for a variety of reasons and can come from internal or external sources. It is your responsibility (as the broker) to understand the client’s business, potential risks, their history, experience and business performance. You will also need to understand specific aspects of the transaction such as your client’s intended goals, objectives and requirements in purchasing the equipment.
Task 1: Question 1
Prepare a list of questions that you would ask Ray and Steve in order to gather information in preparation of the loan application. Your questions for Ray and Steve should uncover:
•
their understanding of the risks and complex nature of purchasing this equipment (e.g. the risk that the investment may not meet the returns they are expecting)
•
their understanding of the potential risks and benefits/returns associated with financing the equipment purchase •
identification of their tolerance of risk in relation to the purchase, damage to equipment during delivery,
installation or operations. How would they mitigate these risks?
•
if they have any specific product and/or product features they require •
if they want flexibility in the product to be able to pay it out early or be able to refinance
•
if they would consider using their own properties as security to provide different lending options
•
you need to uncover their understanding of their obligation for insurance and maintenance of the equipment etc.
•
to understand the financial aspects of the transaction (i.e. total costs, installation, other potential premises modifications required to accommodate the machine etc.) •
the current financial position of the business. •
to ascertain if they have a taxation strategy in regards to the purchase of the equipment
•
which other professionals will they will consult with and for what purpose? •
to understand and/or mitigate any other potential risks you have identified with their situation. For example, their experience, background, succession planning, business ownership issues.
(500 words)
Student response to Task 1: Question 1
1)
xxxxxxxx
2)
Did you both have any specific product and/or product features which are important to you both when choosing a loan product 3)
Now xxxxxxxx discuss some variable options? 4)
In some cases, we may need to look at using your Own (Owner Occupied) property as security for a loan so we bring the loan to value ratio down which means you can avoid paying Lenders mortgage fees. Would you be comfortable using your own property as security to provide different lending options if the bank requires it? 5)
In regards to Insurance for this purchase, have you had the chance to look into some insurance options as Page 8 of 79
dddddddddddddddddddddddddddddddddddzzzzzzzzzzz
6)
Are we able to please discuss some potential risks which I have identified with your current situation? I have noticed that in regards to Insurances, it seems you and Steve are not currently covered for Income protection
- given you are both the primary earners, would you be interested in setting this up with a professional to protect yourselves if something were to happen and you were not able to make loan repayments?. Task 1: Question 2
Assess the special financial needs of Ray and Steve by developing a matrix of key product features that would address those needs, in the following table:
Student response to Task 1: Question 2
Product name
Key product features
Client financial needs
Chattel mortgage
•
It provides full ownership of the asset to the business rather than the lender and typically offers a lower interest rate when the asset
is pledged as security.
A business can claim the initial GST amount of the asset purchase price as an input tax credit on its business activity statement (BAS) when utilising a chattel mortgage, provided the business is registered for GST on a cash basis.
•
All interest is tax deductible
• Claim depreciation on tax return
Lease agreement
• Monthly lease rentals are subject to the 10% GST, which can be claimed as a tax input credit if the lessee is registered for the GST.
Repayments will usually cover the initial cost of the equipment plus a profit margin for the lessor. The period over which the goods are estimated to produce income should approximate to the term of the lease.
•
The lessee has immediate use of the equipment with no capital outlay.
Lessees can choose their own supplier and negotiate a price independently.
Commercial hire purchase
•
Interest is charged at a fixed rate for the term of the loan and xxxxxxxxxxx Up to 100% of the cost of the goods can be financed.
Payments can be structured so that nothing is owed at the end of the term or a small balloon payment (like a residual in a finance lease) can be used to offset and reduce monthly payments.
•
flexibility in payment schedules
opportunities to maximise tax deductions created by depreciation of the goods xxxxxx
Page 9 of 79
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Task 1: Question 3
Consider the client background information you have been provided and present a brief explanation of the most relevant key product features that appear to meet the financial needs of Ray and Steve. Highlight any risks that these product features may present.
Student response to Task 1: Question 3
3 Financing options presented to the clients Purpose: Ray and Steven now require finance to assist them with the purchase of a sophisticated machine that uses the technical platform system CNC. Ray and Steve are prepared to sign personal guarantees and are willing to allow the lender to take a charge of business assets. They do not wish to provide a mortgage over their own properties.
Relevant features to meet the financial needs of the applicants Risks that these product features may present. Option 1: Chattel mortgage -
Immediate ownership -
Ability to optimise cash flow while minimising the impact of GST, which is not applicable to individual repayments. -
Given business is registered for GST, it can claim GST on a portion of the purchase price as
an input tax credit (ITC) immediately on its next business activity statement (BAS). Option 2 : Lease Agreement -
No capital outlay -
Obtains a tax deduction for the lease rental payments but the financier providing the lease finance retains ownership of the item and is able to claim depreciation. -
At the End of the lease period, the company can buy the item at its residual value -
-
(Buying the item at the end of its lease period). If it does not and the manufacturing machine raises less than the residual value on the open market, the Company will be liable for the shortfall.
Option 3: commercial Hire purchase -
The financier retains ownership
of the machine until the Company pays it off on a principal plus interest basis. -
The interest is tax deductible. Because the Company is the implied owner of the item, it can claim a tax deduction for the depreciation rate. -
The taxation benefits in the early years of a CHP agreement
may be greater than those achievable by leasing. -
The Company can elect to have repayments scaled down in the -
(The Company having repayments scaled down in the early years of the CHP contract to make a ‘catch up’, or ‘balloon’ payment at the end of
the contract). The Company may not be able to meet this payment when required.
Page 10 of 79
early years of the CHP contract to make a ‘catch up’, or ‘balloon’ payment at the end of
the contract. Assessor feedback for Section 1: Task 1 — Identify the clients’ complex broking needs
[insert feedback]
Date assessed:
Click here to enter a date
Does the student need to resubmit?
Questions that need to be resubmitted
First submission
Resubmission
To pass this subject, you will need to be assessed as DEMONSTRATED for either your first submission or your resubmission.
Page 11 of 79
Task 2 — Develop complex broking options
You are required to prepare a full loan proposal addressed to Ray and Steve
outlining available loan options
and the application process. The proposal must also describe the potential advantages and disadvantages of the financing option that is being recommended.
In a suitable report format, you should prepare the proposal to Ray and Steve, covering the following:
1.
The parties to the loan – what names will be on the loan contract? 2.
Provide two (2) different product options that would meet their needs and objectives – outline the product name/type, loan term, interest rate, balloon payment (if applicable), fees and charges and monthly repayments.
3. Provide your recommendation of the best product option to meet their needs. State why the other product was not in their best interest or the best option for them. 4.
Name three (3) lenders that offer the product you recommended for their transaction. Advise them about the product type, loan terms that are available, interest rate, balloon payment (if applicable), fees and charges and monthly repayments. 5.
Provide a summary of the lender’s applicable fees and charges — including set up costs and ongoing fees and charges. 6.
Advise which relevant disclosures need to be made covering broker remuneration. 7.
Outline all security that will be required, including directors guarantees.
8.
List the documentation they need to provide to obtain the funding for the machine and to obtain a loan approval.
9.
Outline their responsibilities, so they fully understand their obligations regarding the security offered and the equipment during the loan term.
10.
Provide details of the financial and transaction risks associated with the new loan of which they should be made aware. For example, what would happen if they could no longer service the debt?
11.
They enquired about claiming back the GST that is included in the purchase price of the machine. You
also feel that they may be able to utilise ‘Small Business Asset – Instant asset write-off’ benefits. In accordance with your qualification as a mortgage broker, what should you advise them to do regarding their question on claiming back GST?
12.
Invite them to ask you any questions they may have about the transaction. 13.
Provide an instruction for them to advise you to proceed with the application on their behalf. (800 words)
Notes:
Any assumptions you make should be listed, and not be in conflict with the case study information already provided.
You are to write a loan proposal to your clients, demonstrating your professional writing skill — not simply commenting on each of the points detailed above. Your proposal should be supported by evidence-based statements and not contain opinion-based commentary.
The use of tables in the report to set out some of the numeric information may be of benefit.
Use an Upfront commission at 0.66% and trail of 0.165% which includes GST
Student response to Task 2
T
he Lending Proposal
Borrower/ Applicant details: Page 12 of 79
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Borrower details: Raymond Murdoch and Steven Brown as joint directors trading under the name Pallets- R-Us Pty Ltd
ABN: 64 123 123 123
ACN: 123 123 123
Director information: Raymond Murdoch Steven Brown Shareholders Raymond Murdoch 50% Steven Brown 50% Date of Birth 45 years 12/9/19XX
42 years 12/12/19XX
Registered Place of business 1 Industrial Court, Hillside 2120
1 Industrial Court, Hillside 2120
Solicitor and accountant details David Hill of David Hill Accountancy.
David Hill of David Hill Accountancy.
Background of Borrower/Applicant Ray and Steve jointly own a successful and growing business that manufactures metal pallets. They trade under the name Pallets-R-Us Pty Ltd. The pallets are manufactured using material that is lightweight and durable. There has also been a very structured approach to the research and development for the engineering and design of the pallets. The pallets are used in all industry sectors. They have a well-established client base that provides them with repeat ‘business-to-business’ dealings. They have been trading for five years and have a solid business plan with written supply contracts with three major business clients and several smaller business clients. Ray and Steven now require finance to assist them with the purchase of a sophisticated machine that uses the technical platform system CNC. LOAN OPTIONS
Loan Option 1: Asset Lease Facility
Loan term: 5 years Interest rate: 6.95%
balloon payment (if applicable) – yes/no Fees and charges and monthly repayments: $30 monthly fees Loan Option 2: Chattel Mortgage
Loan term: 7 years Interest rate: 6.35%
balloon payment (if applicable) – Yes/ no Fees and charges and monthly repayments: no monthly fees Product recommendations: Asset Lease vs Chattel mortgage Asset Finance Lease:
Asset lease comes with lower interest rate but a monthly fee
The ATO-set residual amount can’t be adjusted – Paying the principle down quicker but also paying more interest than the Chattel Mortgage.
The available term is also shorter than with a chattel mortgage, so that drives monthly repayments up.
The purchase price is GST-free, because the lender claims that back Chattel Mortgage:
The residual is adjustable and the maximum term available is seven years, so it’s easy to reduce repayments (clients were looking for a 7 year loan term).
You are able to adjust the residual to reduce the monthly repayments, improving their cash flow or even aligning the regular cost of the finance with the revenue the asset generates.
You are able to claim all of the GST on the purchase price when they file their next BAS
Page 13 of 79
ASSESSMENT Lender options based on estimates and quotes with Lenders Product type & Loan Term Interest rates and monthly repayment Balloon payment/ fees and charges bALL
Option 1) Bank of Queensland
Chattel mortgage
BOQ Chattel Mortgage with loan terms ranging from 1-8 years Fixed 6.35%
with monthly repayments
at $11,062.72 p/m -
Option
al balloo
n (10%
balloo
n for examp
le $80k) payme
nts -
No month
ly fees Option 2) Westpac Chattel mortgage Small Business loan rate with loan terms ranging from 1-7 years
Fixed rate of 6.66% with monthly repayment at $11,191.45 p/m -
Option
al balloo
n (10%
balloo
n for examp
le $80k) -
No month
ly Option 3) Suncorp chattel Mortgage Suncorp chattel Mortgage with loan terms ranging from 1-6 years Fixed rate at 6.85% with monthly repayment at $11,270.68 p/m -
Option
al balloo
n (10%
balloo
n for Page 14 of 79
examp
le $80k) -
Payme
nts
-
Establi
shmen
t fee of $350
-
Fees and charges: Fees payable by you
We do not charge you for our services as we are paid commission by the lender. However, you may need to pay the lender's application fee, valuation fees, or other fees depending on how your loan is structured.
How are we paid?
Lenders/funders pay commissions for arranging loans. The range of commissions is: Upfront
(payable one month after the settlement): Up to 0.66% of the loan amount Trail
(i.e. payable throughout the term of the loan): Up to 0.0165% per annum (paid monthly) of the loan balance. The exact amount paid by each lender is included in the lender schedule provided to you. What security will be required for this loan type ( Chattel Mortgage) A chattel mortgage is sometimes referred to as a specific security agreement (SSA), as the lender secures the loan by registering a charge over the goods.
It provides full ownership of the asset to the business rather than the lender and typically offers a lower interest rate when the asset is pledged as security. A business can claim the initial GST amount of the asset purchase price as an input tax credit on its business activity statement (BAS) when utilising a chattel mortgage, provided the business is registered for GST on a cash basis.
Personal Guarantees A personal guarantee will be required from this Lender (BOQ) as Directors have confirmed they do not wish to provide
a mortgage over their own properties. The Personal Guarantee is also required to be accompanied by a statement from an Independent Solicitor so the borrowers are aware of the nature and contents pf the document to the intending guarantor. Supporting Documentation required for this application: Requirement Documentation Identification Copy of certificate of incorporation or business registration as appropriate. Copy of trust deed if applicable. Identification for directors/guarantors (i.e. 100 point check).
Page 15 of 79
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Income
Financial statements for self-employed or corporate applicants for the last 2–3 years. Tax returns and assessment notices for the corresponding period for corporate applicants and directors/guarantors.
Banking/ accounts
Last 12 months statements for bank trading accounts.
Loans/ other facilities
A schedule of current loans, leases and CHP commitments for the corporation and directors/guarantors.
Property information
Full copy of contract of sale if application is for purchase
of property. Full copy of commercial property leases. Current rates notice if refinancing. Property insurance details. Copy of invoice for equipment to be financed.
Please note the following: • Before you accept your loan offer, make sure you read the credit contract/loan agreement carefully to find full details of the loan. Warning: You should check the loan agreement/credit contract to ensure that the terms of the loan do not vary from what you require. If they do, please inform us immediately so that we can assist you. • We represent lenders and have obligations to them, in particular not to provide any information we know is misleading or deceptive. We also have obligations under the law to report any fraud, forgery, or other illegal activities.
By signing this agreement you confirm that you understand that we have these obligations to the lender and under the law. If you have any questions about our role, ask before you sign. • We are required to ensure that the finance we arrange for you is appropriate. Accordingly we will make reasonable enquiries in relation to your needs, objectives, and financial circumstances. Warning: The proposed loan arrangements
will be based on the products available from our panel lenders and the information provided by you. If the information you provide is incomplete or inaccurate, before entering the loan you should consider its appropriateness having regard to your relevant personal circumstances and if necessary seek independent financial advice. • We do not provide legal or financial advice. Accordingly, it is important you ensure you understand your legal obligations under the loan, and the financial consequences. If you have any doubts, you should obtain independent legal and financial advice before you enter the loan contract. • We do not determine or recommend the conditions of the credit contract (such as interest rates, fees, or the term of
the loan). • We and nobody else will receive any financial or other benefit or have any other interest or relationship which could reasonably be expected to influence our recommendation other than as disclosed in this agreement. • We undertake to inform you if (if not already stated in this document), after recommending a particular product and
prior to you entering into a contract for that product: – The commission payments differ from those described in this agreement or lender schedule; – If we determine or recommend conditions of the credit contract, the effect of any such condition on the amount of commission we receive from our panel lenders/ funders; – Any other person will receive any benefit if that person could reasonably be expected to influence our recommendation; and – Any interests
or relationships we have that could reasonably be expected to influence our recommendation.
Borrowers Please Note:
1. If you repay your loan early you may have to pay fees. Before you sign your loan contract, make sure you understand what fees are payable on early repayment, as sometimes these fees are quite large. 2. This contract does not provide for a disclosure of any direct or indirect interest in the loan transaction, any property
or services being purchased using any part of the loan, any property offered as security, or any other commercially relevant transaction — e.g. budget coaching services. If there are any such interests, we recommend that it is in the borrower's best interests to obtain independent advice in relation to the merits of the transaction
Customer enquiries: Page 16 of 79
-
You have both requested further information regarding claiming back the GST that is included in the purchase price of this machine. You have mentioned you would like to discuss utilising the “small business asset - instant asset write- off” benefits. -
Please note, in accordance with my qualification as a mortgage broker - I would recommend you seek professional advice from an appropriate tax adviser.
-
Do we have the ability to make extra repayments, or payout the loan early and whether any penalties would apply? -
Could you please explain what fees are involved and what needs to be paid to the broker? Additional customer questions: Please feel free to include any further questions you have regarding this transaction Next steps: ASSESSMENT This assessment is valid for 90 days from the date below. Having regard to the information above, I make a (preliminary) assessment that the following product is suitable/not unsuitable/acceptable for the borrower(s) and is appropriate finance for the borrower(s).
Option 1:
Option 2: Lender: Lender: Product: Product: Page 17 of 79
Assessor feedback for Section 1: Task 2 — Develop complex broking options
[insert feedback]
Date assessed:
Click here to enter a date
Does the student need to resubmit?
Questions that need to be resubmitted
First submission
Resubmission
To pass this subject, you will need to be assessed as DEMONSTRATED for either your first submission or your resubmission.
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Task 3 — Implement complex loan structures
Ray and Steve have accepted your recommendations and have given you authority to proceed with their application.
As part of implementing their loan application you are required to prepare a formal written loan submission to the lender
for approval. Note:
Lenders have different credit policies and submission requirements which vary from lender to lender.
Your loan submission must include:
1.
the details of borrower, guarantors and all contact details
2.
the borrower and key personnel’s background
3.
an overview of the proposal — what the finance is for – how does it benefit the business
4.
a ‘funds-to-complete’ table (cost, deposit etc.) including statutory costs and any relevant fees
5.
the proposed structure of the facility being recommended — product type, loan amount, term, interest rate, repayments and residual value (if any), pricing (lender fees etc.) 6.
cash flow/serviceability calculations using NPAT averaged
over two years. Include the current company loan repayments along with the annual interest on the company overdraft calculated at 80% of the limit
7.
Full details of the security/collateral that is to be provided and whether clients should seek independent legal advice 8.
Any relevant conditions of approval that the client must meet (if applicable)
9.
a description of the relevant risks — industry, business, transactional, financial — and how they will be mitigated 10.
a list of all documents that would be attached to the application
11.
any other information that is relevant to assist the lender to provide an approval 12.
your comments and recommendations.
(800 words)
Notes:
Any assumptions you make should be noted, and not be in conflict with the case study information already provided.
You are to write a formal submission to the lender; not simply commenting on each of the points detailed above. The use of tables in the report, to set out some of the numeric information, may be of benefit.
Page 19 of 79
Student response to Task 3
Credit memorandum
Borrower details:
Name:
Pallets-R-Us Pty Ltd
ACN/ABN: 123 123 123/ 64 123 123 123
Directors:
Name/address
Ray Murdoch and Steven Brown Shareholders:
Name/address/
percentage of shareholding
Raymond Murdoch – Address: Unit 43, 25 High St Northville, and has lived there for six years. Raymond is a 50% shareholder Steven Brown – 23 Desmond Lane Northville, and has lived there with Kate for seven years. They own property jointly. Steven is a 50% shareholder Principal place of business
1 Industrial Court, Hillside 2120
Postcode
2120
Phone number
Raymond personal: 9251 2121 or
Steven: 9254 1212
Fax number: n/a Year established
Trading for 5 years (since 2016)
Industry (if applicable
):
Engineering
Nature of business activities
Manufactures Metal pallets
Trust
Full name of trust
Answer here
Type of trustee
Answer here
Company Y / N
Individual Y / N
Name of trustee
Answer here
Year established
Answer here
Type of trust
Answer here
Beneficiaries
Answer here
Background Background of Borrower/Applicant/s
Ray and Steve jointly own a successful and growing business that manufactures metal pallets. They trade under the name Pallets-R-Us Pty Ltd. The pallets are manufactured using material that is lightweight and durable. The pallets are used in all
industry sectors. They have a well-established client base that provides them with repeat ‘business-to-business’ dealings. They have been trading for five years and have a solid business plan with written supply contracts with three major business clients and several smaller business clients. Ray and Steven now require finance to assist them with the purchase of a sophisticated machine that uses the technical platform system CNC. Page 20 of 79
Purpose/Loan details/Funding table/Pricing
Loan purpose: Purchase of a Machine for Business use This machine can be programmed to rapidly fabricate multiple components. The machine has an expected commercial lifespan of at least 15 years with the operating software to be updated every three years for the first 12 years. The software
and upgrades are included in the purchase price of $800,000 inclusive of GST.
The clients have sufficient funds to cover the $20,000 installation costs of the machine. The new machine will enable them to take on new contracts with an expected increase in business through the automation of production. They have forecast that they will need to recruit an additional two staff members in the next 3–6 months to meet sales/production demands.
Recommended loan Facility: Bank of Queensland Chattel mortgage Lender Product type Interest rates and monthly repayment Balloon payment Fees and charges Bank of Queensland chattel Mortgage BOQ Chattel mortgage with loan terms ranging from 1 – 8 years ( we have chosen 7 years) Fixed rate at 6.35% with monthly repayments at $11,062.72 p/m. This is ( based on balloon payment of 10% at the end of the loan term ($80,000) This is ( based on balloon payment of 10% at the end of the
loan term ($80,000)
No monthly fees If client would Like to go on A package Funds To Complete table Purchase price $800,000
Stamp Duty ( State) nil
Legal costs $1500
Sundry costs nil
Lender establishment fees Nil Total required $801,500
Debt servicing/Sensitivity/Ratios
Answer here
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Security details/Exit strategy
Security
Security will be taken over the equipment/machinery which the borrowers intend to purchase valued at $800,000. I Have explained to the clients that the Lender secures the loan by registering a charge over the goods. It provides full ownership of the asset to the business rather than the lender and typically offers a lower interest rate when
the asset is pledged as security. The clients have decided to proceed with the Chattel mortgage as they do not wish to provide a mortgage over their own Properties. I have also mentioned to the clients that the business can claim the initial GST amount of the asset Purchase price as an input tax credit on its business activity statement (BAS) when utilising a chattel mortgage, provided the business is registered for GST on a cash basis.
Personal Guarantees I have discussed with the borrowers that a personal guarantee will be required from this Lender (BOQ) as the Directors have confirmed they do not wish to provide a mortgage over their own properties. The Personal Guarantee is also required to be accompanied by a statement from an Independent Solicitor so the borrowers are aware of the nature and contents of the document to the intending guarantor. Conditions precedent
Funds to be held in tranche and released upon receipt/ invoice of machine/Equipment for Business usage.
Condition for Independent legal advice for both borrowers
Personal guarantees from both borrowers Business/Industry/Transaction Risk
Industry Risk The Pallets and Other Wood Product Manufacturing industry has exhibited a mixed performance over the past five years, but displayed an upward trend overall. Industry performance is particularly sensitive to demand for wooden pallets, as pallets account for almost 40% of industry revenue each year. Overall, industry revenue is projected to increase at an annualised 1.4% over the five years through 2021-22, to total $1.1 billion
Business risk Several factors have contributed to serious shortage of Timber as per Article via Plain pallets. They have explained That cuts to Victoria’s native timber industry have been keenly felt in manufacturing, contributing to Melbourne’s Pallet shortage. In regards to this transaction, The pallets are manufactured using material that is lightweight and durable. There has also been a very structured approach to the research and development for the engineering and design of the pallets. The pallets are used in all industry sectors.
Transactional Risk
The borrowers have a well-established client base that provides them with repeat ‘business-to-business’ dealings. They have been trading for five years and have a solid business plan with written supply contracts with three major business clients and several smaller business clients. Attachments to accompany the submission
Supporting Documentation required for this application: Requirement Documentation Identification -
Copy of certificate of incorporation or business registration as appropriate. -
Copy of trust deed if applicable. Identification for directors/guarantors (i.e. 100 point check).
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Income
-
Financial statements for self-employed or corporate applicants for the last 2–3 years. -
Tax returns and assessment notices for the corresponding period for corporate applicants and directors/guarantors.
Banking/ accounts
-
Last 12 months statements for bank trading accounts.
Loans/ other facilities
-
A schedule of current loans, leases and CHP commitments for the corporation and directors/guarantors.
Property information
-
Full copy of contract of sale if application is for purchase of property. -
Full copy of commercial property leases. -
Current rates notice if refinancing. -
Property insurance details. -
Copy of invoice for equipment to be financed.
Supporting information and Recommendation
Answer here
Name:
Organisation:
Date
:
Assessor feedback for Section 1: Task 3 — Implement complex loan structures:
[insert feedback]
Date assessed:
Click here to enter a date
Does the student need to resubmit?
Questions that need to be resubmitted
First submission
Resubmission
To pass this subject, you will need to be assessed as DEMONSTRATED for either your first submission or your resubmission.
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Task 4 — Verification of applicant’s financial situation This task requires you to describe the actions that you would take to verify the applicant’s details and financial situation.
You will need to identify the key verification tasks associated with the financial situation of both individual applicants and related business activities, based on the information set out in the case study. Task 4: Question 1
(a) Identify and list each of the individuals and/or business entities for which you would require a credit report. (b) Name the company that you would use to access this information and explain what you require from the client, in order to gain consent to obtain this information.
(c)
Part (b) requires you to obtain appropriate consent to conduct the credit check. What legislation are you complying with by obtaining consent prior to proceeding?
(d)
List the information that is provided in the credit report? (Provide six (6) items)
Student response to Task 4: Question 1
(a)
Individual Credit reports which will be required: Raymond Murdoch & Steven Brown. In relation to Business entities - we are required to obtain the Company credit report for” Pallets-R-Us Pty Ltd and confirm they have joint 50/50% shareholding of the company”. (b)
The Company that we would use to obtain this information would be from “Equifax” - we would require a privacy and consent form to be signed by the Individuals (Raymond Murdoch and Steven Brown”). The loan applicant is required to sign an authority to enable the lender to conduct a credit reference check with a credit agency to review the applicant’s record for defaults, judgements, current accounts and recent enquiries. Failure to provide this authority will lead to the loan application not being processed.
(c) The Legislation we are complying with is the Privacy ( Credit Reporting) Code 2014 (d) 6 items which are listed on a credit report: • credit history details covering: – credit applications and enquiries over the last five years, including banks and utilities such as gas, electricity, telephones and finance companies – the amount of credit being applied for, and the type/purpose of credit sought such as an overdraft, interest-free home loan and credit card. • records of current credit accounts • overdue accounts that may have been listed against the borrower • bankruptcy information • judgements, including writs and/or summons from courts around Australia • public record information such as directorships and proprietorships.
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Task 4: Question 2
(a)
What documents do you need to obtain to identify the individuals that are party to this loan? (b)
Name the Legislation that covers this requirement.
Student response to Task 4: Question 2
(a)
Applicants/third part identification (100 point check) (b) AML/CTF - Know your customer (KYC) - Under anti-money laundering (AML) legislation, it is necessary for credit
providers to verify the identity of applicants before providing a designated service.
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Task 4: Question 3
What sources or supporting documentation would you need to obtain in order to verify the financial information disclosed by the client? Student response to Task 4: Question 3
Information Description Business details
Including the: • business name • address • contact details • registered Australian Business Number (ABN), where applicable.
Business type The type of Business Size of Business The size of the business in terms of annual turnover, profit and number of employees Length of time in business The length of time that the business has been trading The information will need to be substantiated by documentary evidence such as tax returns, profit and loss statements and business registration documents.
After reviewing the background information and the business details of the applicant, complete the following questions:
Task 4: Question 4
Provide a summary of the impact that the new loan repayments will have on the company’s financial position after debt servicing. Assume a projected increase of 50% in net profit based on the Year 20X1 trading results. Student response to Task 4: Question 4
Answer here
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Task 4: Question 5
Based on the background information provided in the case study and assuming an interest rate of 4.5% p.a., a brokerage fee of 2%, a residual value of 30% and a term of 5 years, calculate:
•
the borrowed amount
•
the brokerage fee
•
monthly repayments
•
total of annual repayments
•
residual amount
•
total of repayments over term of the loan including residual payment.
Please identify the calculator you have used and show your calculations.
Student response to Task 4: Question 5
Have used: https://www.strattonfinance.com.au/calculators/chattel-mortgage-calculator
Total amount borrowed $800,000
Monthly repayments
$11,340.09
Total annual amount of repayments
$136,081.08
Residual amount
$240,000
Total of repayments over the loan term (include the residual payment)
$680,405.4+ $240,000 = $940,405.4
Brokerage fee
$16,000
Task 4: Question 6
(a)
Refer to Task 2 and list the two security instruments to be obtained to secure this transaction. (b)
Explain what the impact would be for the directors and the company should the lender call on each of the securities provided.
Student response to Task 4: Question 6
(a)
The two security instruments would be the equipment which the borrowers would like to purchase Page 27 of 79
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and secondly would be the guarantee. (b)
Directors’ personal guarantees, where available, help ensure that the directors of a company borrower are committed to the repayment of the debt. In the event of default by a company borrower, the lender has the right to call on the guarantors to meet any shortfall from their personal
assets. Secondly the lender can also take an equipment if the borrower defaults on the loan and unable to make their repayments. Guarantees can also be accepted or required from other entities in a corporate group. For example, a parent company might provide a guarantee for the borrowing subsidiary organisation, particularly when there is a reliance on cash flow from the parent entity to meet debt servicing.
(Task 4b questions 1-6, 500 words)
Note:
To complete this task you will need to refer to the Toolbox
in the sections
Pallets-R-Us Pty Ltd and
‘Lending organisation’s guidelines, policies and procedures, legislative requirements, loan verification and loan standards’. You may also need to conduct your own independent research to answer these questions.
Assessor feedback for Section 1: Task 4 — Verification of applicant’s financial situation:
[insert feedback]
Date assessed:
Click here to enter a date
Does the student need to resubmit?
Questions that need to be resubmitted
First submission
Resubmission
To pass this subject, you will need to be assessed as DEMONSTRATED for either your first submission or your resubmission.
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Section 2: Case Study 2 — Bill Smith and John Jones – Commercial Premises Finance
The case study is located in the subject room
Task 1 — Identify the clients’ complex broking needs
It is the broker’s responsibility to understand the client’s business, potential risks, their history, and experience and business performance. You will also need to understand specific aspects of the transaction such as the client’s intended goals, objectives and requirements in purchasing the property.
1. Prepare a list of questions that you would ask Bill and John in order to gather information in preparation of the loan application for their commercial property purchase. Your questions to Bill and John should uncover the following areas:
•
the reasons behind the complex trust structure they have chosen – particularly with the shareholder involvement and their willingness to be involved in the transaction with the lender
•
the benefits and risks with this property purchase
•
their risk tolerance with different product types (i.e. fixed rates/interest only, term of loan etc.)
•
the impact this purchase will have on the business and its financial position
•
anticipated costs to fit out the new premises to suit their business needs
•
the business structure/key personnel risks
•
the business and industry risks (e.g. required licencing and professional indemnity).
(200 words)
Student response to Task 1
In Regards to how the business structure has been set up - are you both able to please explain the relationship between the Shareholder and her willingness to be involved in the transaction with the
Lender as this was not the previous structure
Could we please discuss the benefits and risks of this particular property purchase? Do you think expansion of the Business premises with affect cashflow or foresee any issues with this new purchase?
Are we able to discuss your preference for product types such as fixed/ interest only and term of the loan? I can see your previous enquiry says you would prefer
In regards to this purchase of your new Owner occupied premises - could you we please discuss how this purchase will affect the business and its financial position, as well as anticipated costs to fit out the new premises to suit the business needs? Do you have the funds to cover the additional cost or will you be using the sale proceeds?
Are we able to discuss the business structure and shareholder structure? I can see that there is equal shareholding between the 3 of you but only Bill Smith and John Jones as trustee directors? Was this set up this way for any particular reason?
In regards to business and industry risks - Page 29 of 79
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Assessor feedback for Section 2: Task 1 — Identify the clients’ complex broking needs:
[insert feedback]
Date assessed:
Click here to enter a date
Does the student need to resubmit?
Questions that need to be resubmitted
First submission
Resubmission
To pass this subject, you will need to be assessed as DEMONSTRATED for either your first submission or your resubmission.
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Task 2 — Prepare complex broking options
You are required to prepare a full report for Bill and John by outlining the application process and the risks (potential and real) of which they should be aware. This must be presented in a suitable format that would be sent to the client.
You will be required to outline to the directors the product options available to them and the process that will need to take place for them to complete the new property purchase and establish the loan. In preparation of researching the product options, you will need to understand the client’s situation and what funds will be available between the purchase and the sale settlement as outlined in the case study.
The two (2) product options for the property purchase are as follows:
Option 1: A bridging loan with a term loan following bridging period (post sale settlement) Option 2: A variable rate term loan (to effect the purchase in 90 days time).
In developing your report, you should cover the following:
1.
Who are the parties to the loan, given the Trust involvement 2.
Provide Bill and John with two (2) complex loan product options –
Option 1: Bridging loan with a term loan to follow the bridging period –
Option 2: Variable rate term loan.
3.
What are your recommendations of the best loan structure option, including:
•
the loan amount
•
security/collateral including personal and company guarantees
•
the loan term
•
an explanation as to why the other option is not as suitable for the clients (include pros and cons and differences in fees and interest etc.)
4.
Name three (3) lenders that offer the recommended product option required to facilitate this transaction. Advise the client of the product type, loan term, interest rate, ongoing fees and monthly repayment for each of the lenders.
5.
What is the procedure to implement the loan, including the documentation Bill and John are required to provide and the security they need to provide? 6.
Outline the risks of which Bill and John should be made aware. Information should cover risks associated with the selected loan products and required security, including guarantees and forms of security required in addition to property.
7.
Provide the name of the borrower that will be on the loan contract. Also, what name will go on the Certificate of Title (given the Trust involvement) when it is registered with the Land Titles Office? (This varies from state to state so please advise which state you are from – refer to the Toolbox for assistance to conduct your research.)
8.
Prepare a full funding description including a summary of fees and charges for the purchase of the property and also the setup costs (e.g. solicitors fees) and the lender’s fees and charges. If there is a shortfall of funds, how will this shortfall be covered?
9.
The clients enquired about claiming back the GST that is included in the purchase price after settlement. In accordance with your qualification as a mortgage broker, what do you advise the clients to do regarding this question?
10.
You request that the client informs you of any questions about the transaction and/or provide instructions for you to proceed.
11.
Advise which relevant disclosures need to be made to the client regarding the broker remuneration.
(800 words)
Notes:
Any assumptions you make should be listed, and not be in conflict with the case study information already provided.
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You are to write a report to clients demonstrating your professional writing skills, not simply commenting on
each of the points detailed above. The use of tables in the report to set out some of the numeric information may be of benefit.
Student response to Task 2
T
he Lending Proposal
Borrower/ Applicant details: Borrower details: True Blue Investments Pty Ltd as trustees for the Smith Jones Williams Unit Trust. Trustee Directors are Bill smith & John Jones. Trust Unit Holder: Bill Smith 33% shareholding, John Jones 33% shareholding and Amanda Williams 33% shareholding. Trust name: smith Jones Williams Unit Trust - Established: 1/01/202x
ABN: 24 576 576 570
Trustee: True Blue Investments Pty Ltd – Established 1/01/202x ACN: 576 576 570
Trustee Directors Bill Smith John Jones Non Directors Shareholders Bill Smith 33% John Jones 33% Amanda Williams 33%
Date of Birth 54 years old 48 years old 42 years old Registered Place of business 80 Smith Street, Yourtown 1234
80 Smith Street, Yourtown 1234
80 Smith Street, Yourtown 1234
Solicitor and accountant details Buckland Accountants.
Buckland Accountants.
Unknown Background of Borrower/Applicant Bill Smith and John Jones Require assistance with their acquisition of an Owner occupied premises to replace their current business premises, which is now too small for the growing business. True Blue Pty Ltd trades as True Blue Real Estate and was purchased as an existing real estate business three years ago. Bill Smith and John Jones are the directors. The shareholders of True Blue Pty Ltd are Bill Smith, John Jones and a private investor, Amanda Williams, who does not work in the business and has no involvement in its day-to-day operation. As part of their business agreement, an annual payment of $45,000 is paid to Amanda. Bill, John and Amanda each hold an equal one-third share in the company
LOAN OPTIONS
Loan terms and Interest rates: Details: Page 32 of 79
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Loan Option 1: Bridging loan with a term loan to
follow the bridging period ( Standard variable rate home loan) Maximum term is 12 months - you will need to sell and settle your current property within this timeframe - Interest rates for this product can vary (currently ranging from 5.19% to 9.18%)
-
You must be able to demonstrate your ability to make Interest Only payments on the ‘total debt’ during the bridging period.
-
If you have an existing home loan, it means that you may be paying interest on two loans – your bridging loan and the new loan – at the same time
-
You have the choice to pay ‘Interest Only’ on your loan(s) for the duration of the bridging loan period.
-
You can pay back the bridging loan early if you choose – there
are no penalties for early repayment.
-
Once the bridging loan has been paid off, generally your ongoing home loan (known as post bridging debt) will revert to a Principal and Interest repayment option. You’ll need to budget for your future repayments after your bridging loan has been repaid.
Loan Option 2: Option 2: Variable rate term loan.
-
Upto a 30 year term -
Ability to make extra repayments -
100% home loan offset facility choice of interest only repayments -
Ability to split the loan into variable and fixed portion -
Access to telephone and internet banking -
Ability to include in a banking package -
Rates varied depending on LVR -
Establishment fee of $600
-
Valuation fee $150
-
Monthly account keeping fee $10
-
Arrears admin fee $20
-
Minimum borrowing $150,000
Product recommendations: Bridging loan with a term loan to follow the bridging period ( Standard variable rate home loan) Product Loan amount Security/ collateral inc personal and
Loan term Recommendation Bridging loan with a $665,000 ( Lender Interest only period Loan term can range
We have Page 33 of 79
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term loan to follow the bridging period ( Standard
variable rate home
loan)
has indicated a maximum loan to value ratio of 70%) for this loan with purchase price being
$950,000
of 12 months maximum then the product will revert to P & I from 1 to 30 years recommended this loan as the current ASSESSMENT Lender options based on estimates and quotes with Lenders Product Type & Loan Term Interest rates and monthly repayment Product features & loan fees Option 1) Bank Gateway (Commercial property loan) https://
www.gatewaybank.com.a
u/commercial/
commercial-mortgages/
commercial-property-
loan/
-
Interest only period of 1 year then reverts
to Variable rate of 5.29% with a maximum loan to value ratio of 70% -
Upto a 30 Year Loan term for Principal & Interest repayments
-
Variable Principle and
interest loan with rate of 5.29% p/a
-
Monthly repayments at $5,360 based on a 15 year period and total interest payable $299,761 based on current interest rate. -
$0 annual fee
-
Monthly fee of $25
-
Establishment fee $1,500 for loans up to $750k and 0.04% of total amount applied for over $750k (standard applications
-
Redraw facility ( yes for variable)
-
Additional repayment
- yes -
-
Option 2) Commonwealth bank ( Better business loan) https://
www.commbank.com.au/
business/loans-and-
finance/betterbusiness-
loan.html?
ei=betterbusiness-
loan#rates
-
Interest only period of 1 year then reverts
to Variable rate of 7.10% (residentially secured) and 9.18% p/a as a base rate with a maximum loan
to value ratio of 70% -
Upto a 15 Year Loan term for Principal & Interest repayments for a commercial security and 30 years for a Residential security -
Variable Principle and
interest loan with rate from 7.10% - 9.18% depending on security. -
Monthly repayments for minimum rate is $6,014 p/m based on a 15 year period and total interest payable $417,601 based on current interest rate. -
Fees depend on security used for application
-
Include an indicative establishment fee, loan service fee and other fees -
No establishment fee for unsecured loans under $250,000 when you apply through BizExpress. Other fees apply
-
Option 3) ANZ ( Go Biz Commercial loan) https://
www.anz.com.au/
business/loans-finance/
business-loan/
-
Interest only period of 1 year then reverts
to Variable rate of 9.74% maximum loan
to value ratio of 70% -
Minimum loan amount of $10,000 with max term up to 30 years -
Variable Principle and
interest loan with rate of 9.74% p/a
-
Monthly repayments at $7,041 based on a 15 year period and total interest payable $602,330 based on current interest rate. -
upfront fee to be negotiated with Lender
-
$35 late repayment fee -
Secured or unsecured
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What security will be required for this loan type The security which will be required for the loan will be the Commercial premises to be purchased: 100 Smith St, Yourtown with the Contract of sale showing purchase price $950,000. Personal Guarantees The owners or operators of the business generally have to provide personal guarantees for the loans.
The means of securing the loan might be through the assets being purchased, by a mortgage over property owned by the business operators or owners or by a general security agreement (a security that a company grants over the whole
of its assets and if a default occurs, the lender may appoint a receiver or administrator over the company) over the assets of the business.
A personal guarantee will be required from this Lender and the Personal Guarantee is also required to be accompanied by a statement from an Independent Solicitor so the borrowers are aware of the nature and contents of the document to the intending guarantor. Supporting Documentation required for this application: Requirement Documentation Identification Copy of certificate of incorporation or business registration as appropriate. Copy of trust deed if applicable. Identification for directors/guarantors (i.e. 100 point check).
Income
Financial statements for self-employed or corporate applicants for the last 2–3 years. Tax returns and assessment notices for the corresponding period for corporate applicants and directors/guarantors.
Banking/ accounts
Last 12 months statements for bank trading accounts.
Loans/ other facilities
A schedule of current loans, leases and CHP commitments for the corporation and directors/guarantors.
Property information
Full copy of contract of sale if application is for purchase
of property. Full copy of commercial property leases. Current rates notice if refinancing. Property insurance details. Copy of invoice for equipment to be financed.
Please note the following: • Before you accept your loan offer, make sure you read the credit contract/loan agreement carefully to find full details of the loan. Warning: You should check the loan agreement/credit contract to ensure that the terms of the loan do not vary from what you require. If they do, please inform us immediately so that we can assist you. • We represent lenders and have obligations to them, in particular not to provide any information we know is misleading or deceptive. We also have obligations under the law to report any fraud, forgery, or other illegal activities.
By signing this agreement you confirm that you understand that we have these obligations to the lender and under the law. If you have any questions about our role, ask before you sign. • We are required to ensure that the finance we arrange for you is appropriate. Accordingly we will make reasonable Page 35 of 79
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enquiries in relation to your needs, objectives, and financial circumstances. Warning: The proposed loan arrangements
will be based on the products available from our panel lenders and the information provided by you. If the information you provide is incomplete or inaccurate, before entering the loan you should consider its appropriateness having regard to your relevant personal circumstances and if necessary seek independent financial advice. • We do not provide legal or financial advice. Accordingly, it is important you ensure you understand your legal obligations under the loan, and the financial consequences. If you have any doubts, you should obtain independent legal and financial advice before you enter the loan contract. • We do not determine or recommend the conditions of the credit contract (such as interest rates, fees, or the term of
the loan). • We and nobody else will receive any financial or other benefit or have any other interest or relationship which could reasonably be expected to influence our recommendation other than as disclosed in this agreement. • We undertake to inform you if (if not already stated in this document), after recommending a particular product and
prior to you entering into a contract for that product: – The commission payments differ from those described in this agreement or lender schedule; – If we determine or recommend conditions of the credit contract, the effect of any such condition on the amount of commission we receive from our panel lenders/ funders; – Any other person will receive any benefit if that person could reasonably be expected to influence our recommendation; and – Any interests
or relationships we have that could reasonably be expected to influence our recommendation.
Borrowers Please Note:
1. If you repay your loan early you may have to pay fees. Before you sign your loan contract, make sure you understand what fees are payable on early repayment, as sometimes these fees are quite large. 2. This contract does not provide for a disclosure of any direct or indirect interest in the loan transaction, any property
or services being purchased using any part of the loan, any property offered as security, or any other commercially relevant transaction — e.g. budget coaching services. If there are any such interests, we recommend that it is in the borrower's best interests to obtain independent advice in relation to the merits of the transaction. Fees and charges: Fees payable by you
We do not charge you for our services as we are paid commission by the lender. However, you may need to pay the lender's application fee, valuation fees, or other fees depending on how your loan is structured.
How are we paid?
Lenders/funders pay commissions for arranging loans. The range of commissions is: Upfront
(payable one month after the settlement): Up to 0.66% of the loan amount Trail
(i.e. payable throughout the term of the loan): Up to 0.0165% per annum (paid monthly) of the loan balance. The exact amount paid by each lender is included in the lender schedule provided to you. Customer enquiries: Customer question:
You have enquired about claiming back the GST that is included in the purchase price after settlement.
Broker Reponse:
Please note, in accordance with my qualification as a mortgage broker - I would recommend you seek professional advice from an appropriate tax adviser, they are best suited to provide assistance with query.
Additional customer questions: Please feel free to include any further questions you have regarding this transaction Next steps: Page 36 of 79
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ASSESSMENT This assessment is valid for 90 days from the date below. Having regard to the information above, I make a (preliminary) assessment that the following product is suitable/not unsuitable/acceptable for the borrower(s) and is appropriate finance for the borrower(s).
Option 1:
Option 2: Lender: Lender: Product: Product: Assessor feedback for Section 2: Task 2 — Prepare complex broking options:
[insert feedback]
Date assessed:
Click here to enter a date
Does the student need to resubmit?
Questions that need to be resubmitted
First submission
Resubmission
To pass this subject, you will need to be assessed as DEMONSTRATED for either your first submission or your resubmission.
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Task 3 — Implement complex loan structures
Bill and John have accepted your recommendations and have given you authority to proceed with their application.
As part of implementing their loan application you are required to prepare a formal written loan submission to the lender for pre-approval.
Note:
Lenders have different templates, therefore, credit policies and submission requirements will vary from lender to lender.
Your loan submission must include:
•
details of borrower, guarantors and their contact details
•
what the business does, borrowers’ backgrounds including directors’ management ability
•
an overview of the proposal — what the finance is for, the proposed structure and loan recommended, including:
–
product type
–
deposit amount (if required)
–
loan amount
–
term
–
interest rate
–
loan repayments.
•
a funds-to-complete table, including statutory costs and any relevant fees
•
debt service cover ratio (DSCR) calculations using information provided in the topic notes and the case
study
•
full details of the security being offered
•
any proposed conditions relating to the loan (e.g. proof of sale of existing premises)
•
the relevant risks. Include industry, business, transactional, economic and personal and how they can be
mitigated
•
any other information that is relevant to assist the lender provide an approval
•
a list of the documents that you would attach in your written submission
•
your comments and recommendations.
(800 words)
Notes:
Any assumptions you make should be noted, and should not be in conflict with the case study information already provided.
You are to write a formal submission to the lender, or complete a word document template and copy and paste into the student response box. Page 38 of 79
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Student response to Task 3
Answer here
Credit memorandum
Borrower details Name:
True Blue Investments Pty Ltd as trustees for the Smith Jones Williams Unit Trust.
ACN/ABN: 123 123 123/ 64 123 123 123
Directors:
Name/address
Bill Smith & John Jones 80 Smith Street, Yourtown 1234
Shareholders:
Name/address/
percentage of shareholding
Bill Smith residing at 26 Nowry Road, Yourtown 1234 with 33% shareholding John Jones residing at 14 Mary Street, Yourtown 1234 with 33% shareholding Amanda Williams at 55 main Road, Yourtown 1234 with 33% shareholding Principal place of business
80 Smith Street, Yourtown 1234 but clients have now sold this property and application is
for the purchase of Postcode
1234
Phone number
9741 1236
Fax number:
n/a
Years of operation
Bill and John have both been in real estate for approximately 12 years, focusing on residential sales and leasing. Industry (if applicable
)
Real Estate Nature of business activities
Real Estate Trust
Full Name of Trust
Smith Jones Williams Unit Trust. Type of Trustee
Company Y / N Individual Y / N
Name of Trustee
True Blue Investments Pty Ltd as trustees for the Smith Jones Williams Unit Trust.
Year established
3 years ago ( 2020) Type of Trust
Fixed Trust - as each shareholder has an equal distribution of 33% Beneficiaries
Bill Smith, John Jones and Amanda Williams Background True Blue Pty Ltd trades as True Blue Real Estate and was purchased as an existing real estate business three years ago. Bill Smith and John Jones are the directors. After receiving advice from their accountant and solicitor, the clients advise that the property purchase and loan are to be in the name of a new entity — True Blue Investments Pty Ltd as trustees for the Smith Jones Williams Unit Trust. There are a total of 99 units in the trust and the unit holdings mirror the shareholding of the trading entity, True Blue Pty Ltd.
The shareholders of True Blue Pty Ltd are Bill Smith, John Jones and a private investor, Amanda Williams, who does
not work in the business and has no involvement in its day-to-day operation. As part of their business agreement, an annual payment of $45,000 is paid to Amanda.
Bill, John and Amanda each hold an equal one-third share in the company. Bill and John have both been in real estate for approximately 12 years, focusing on residential sales and leasing. They have gained their work experience in the local area. A wealth of knowledge of the area, coupled with an ever-
expanding client base, has resulted in sustained and solid growth for the business.
The prospective clients need assistance with the acquisition of an owner-occupied premises to replace their current business premises, which they own but is becoming too small for their growing business.
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Purpose/loan details/funding table/pricing
Loan purpose: Purchase a new commercial premises for the Business Recommended loan Facility: Bank gateway (Commercial premises Finance) Lender Product type Interest rates and monthly repayment Fees and charges
Loan amount and deposit required Bank Gateway (Commercial property loan) -
Commercial property loan -
Interest only period of 1 year then reverts to Variable rate of 5.29% with a maximum loan to value ratio of 70% -
Ranges from a 1 to 30 year term for principle and
interest repayments -
Variable principle and interest loan with a rate of 5.29% -
Monthly repayments at $5,360 based on a
15 year period and total interest payable $299,761 based on current interest rate. -
$0 annual fee
-
Monthly fee of $25 -
Establishment fee $1,500 for loans up to
$750k and 0.04% of total amount applied for over $750k ( standard applications) -
Redraw facility ( for variable) -
Additional repayments ( for variable) -
The lender for this Particular loan product Has confirmed a maximum Loan to value ratio of 70%. -
Sale price for current Office $680,000 less Amount owing on current Mortgage $525,000 = $155,000 as personal Funds back to Directors. Purchase Price $950,000
Less deposit in working Account of $235,000
= $715,000 less deposit Already paid $95k = $620,000
Max loan $665,000 (clients
Will need to contribute an Extra $50k towards this
Purchase from some of the Sale proceeds. Funds To Complete table Purchase price $950,000
Stamp Duty ( State) ( QLD) $32,037.60
Legal costs $1500
Sundry costs $1000
Lender establishment fees $1500
Total required $986,037.6
Security details/Exit strategy
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Security for this purchase will be purchase property located at: 100 Smith St, Yourtown
Purchase price for the property is $950,000. The purchase price is inclusive of GST. The exit strategy for this application has been made a pre settlement condition as clients have not yet confirmed how they intend to pay out the debt. Conditions precedent (If no conditions precedent note with N/A)
-
Require evidence current commercial property at 80 Smith Street, Yourtown 1234 has been sold prior to settlement for current purchase located at 100 Smith St, Yourtown. Evidence to be provided of Business Home
loan account with owing balance of $525,000 to be paid out and closed. (settled) -
Require Independent Legal advice (pre settlement) -
Require exit strategy for both Borrowers/ explanation how they intend to pay down Homeloan once they retire. ( pre settlement)
Business/Industry/Transaction Risk
Business Risk “
The Real Estate Services industry has generally benefited from the strength of the residential property market over the past five years. Record low interest rates and high numbers of housing transfers have supported the industry's performance. However, weakened trading conditions stemming from the COVID-19 pandemic, alongside fluctuating business confidence and consumer sentiment have limited demand for commercial property over the period - according to Industry research reports for 2022”
Given the purchase property is primarily going to be used as the owner occupied premises for this Business and the Directors anticipate that the premises will meet the needs of the business for the next 10-15 years as well as the property being in good condition, well located in the same street as the property to be sold which will be familiar to existing and new clients, with no negative impact on the Business. Industry Revenue is anticipated to continue growing for the Real Estate Services industry over the next five years. Rising residential housing prices and growth in the number of housing transfers will likely support the industry. Furthermore, recovering demand for commercial and industrial properties is projected to benefit industry participants over the period. However, incremental increases to the cash rate will likely subdue activity in the wider
property market.
Attachments to accompany submission
Answer here
Supporting information & Recommendation
Name: Organisation:
Date
:
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Assessor feedback for Section 2: Task 3 — Implement complex loan structures:
[insert feedback]
Date assessed:
Click here to enter a date
Does the student need to resubmit?
Questions that need to be resubmitted
First submission
Resubmission
To pass this subject, you will need to be assessed as DEMONSTRATED for either your first submission or your resubmission.
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Task 4 — Verification of Applicant’s Financial Situation Commercial/business lending is less prescriptive than consumer lending, therefore the information provided to the lender may seem quite thorough to the broker, yet once the lender receives the loan application, it is likely they will seek further information and clarification.
Task 4: Question 1
(a) Identify a minimum of four (4) areas where the lender may require additional information.
(b) What financial services professionals could you engage if you were not able to answer all of the lender’s enquiries? (c) If you needed to escalate any risks or concerns, who would you engage within your own organisation to assist? Student response to Task 4: Question 1
(a)
1) Clarification regarding Tax Returns or Financial Statements, undisclosed debts evident via credit reports, updated bank statements for accounts held by the borrowers and clarification of the Company/Business structure. (b)
If unable to answer all the Lenders questions - best to discuss with the clients Accountant, Solicitor or Financial Planner. (c)
In regards to escalating risks or concerns, would be best to discuss with a Senior Mortgage broker who is experienced with complex lending structures or if requesting further clarification regarding how best to structure the deal, then good to discuss with the Lenders Broker relationship Manger or a Credit Analyst. Task 4: Question 2
In task 2 you obtained the client’s agreement to proceed with the loan application. In accordance with regulation, legislation and codes of practice, where should this information be recorded?
Hint/Tip:
In addition to the topic notes, you may find some information in the Toolbox
Student response to Task 4: Question 2
This information should be recorded via the following documents - will need to provide some or all of the following four documents: Credit guide
A credit guide provides preliminary information about you to a consumer. The time at which you have to provide a credit guide will depend on what type of entity you are and what credit activities you engage in, but will generally be before you engage in credit activities with the consumer.
Quote
A quote tells the consumer the estimated cost to them of using your services, if you charge the consumer a fee. Before
you provide credit assistance, you must give a quote to a consumer, the consumer must have accepted the quote by signing and dating the quote and you must give the consumer a copy of the accepted quote.
Proposal document
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A proposal document sets out the costs to the consumer of using your services, including any indirect remuneration you may receive. You have to give a proposal document at the same time you provide credit assistance to a consumer.
Written assessment
This is a preliminary or final written assessment that a credit contract or consumer lease is ‘not unsuitable’ for the consumer. You are required to give a free copy of the written assessment to the consumer if they ask you for one within seven years of entering into the credit contract (if you are a credit provider) or of the date of the quote (if you are a credit assistance provider).
You are not required to give a written assessment to a consumer if the credit contract or consumer lease is not entered into or the credit limit is not increased (if you are a credit provider), or if you do not provide credit assistance (if you are a credit assistance provider).
Task 4: Question 3
When identifying commercial borrowers and directors, legislative requirements concerning AML/CTF verifications must be met. What checks would you complete to meet these requirements and what would be two (2) possible impacts if you did not complete these checks.
Student response to Task 4: Question 3
1)
Chapter 1 of the AML/CTF Rules provides that reliable and independent documentation includes, but
is not limited to:
-
an original primary photographic identification document
-
an original primary non-photographic identification document
-
an original secondary identification document’.
2)
if the customer is a company in Australia you must collect and verify information including the full name of the company, whether it is registered with the
Australian Securities & Investments Commission (ASIC)
as a public or proprietary company, and its Australian Company Number (ACN) or
Australian Registered Body Number (ARBN).
Possible impacts for not completing these checks: If you don't meet your obligations under AML/CTF law,
AUSTRAC can take steps to enforce your compliance and/or seek a penalty. 'Enforcement actions' are specific legal actions we can take to make sure reporting entities comply with the law. Enforcement actions available to AUSTRAC are: civil penalty orders.
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Task 4: Question 4
In Task 1 you identified potential risks for Case study 2, Bill Smith and John Jones.
Choose three (3) risks that you identified and develop recommendations on risk management strategies that would help to mitigate these risks.
Student response to Task 4: Question 4
Risk Management What impact could this have on The Business?
Recommendation to mitigate These risks Industry The Real Estate Services industry has generally benefited from the strength of the residential property market over the past five years. Record low interest rates and high numbers of housing transfers have supported the industry's performance. However, weakened trading conditions stemming from the COVID-19 pandemic, alongside fluctuating business confidence and consumer
sentiment have limited demand for commercial property over the period.
Security The security offered is specialised as it is a commercial premises which is catered to the Business and nonstandard. This may mean a protracted sale period. Giving the customers the option of bridging finance, so they have sufficient time to sell the current Commercial property which the Business operates out of (12 months
maximum). This allows the customers to purchase with ease of only paying interest only repayments within the 12 month period. Insurance and Compliance Business Insurance is designed to provide cover for the Business contents, stock, tools and commercial premises when an insured event occurs (such as fire, storm, theft or even accidental damage.) A Business Insurance package can also cover your portable equipment, glass and for loss of revenue due to business interruption in specified circumstances. In addition, cover is available for public liability, tax audit, employment practices and statutory liability risks
Would recommend the clients see a professional in regards to Business insurance as there is nothing mentioned in the assets and liabilities section from the clients and it would be in their best interest
to ensure they are protected. Task 4: Question 5
Following your review of the borrower’s financial position, compare their current and future outgoing commitments once the new loan is initially in place. Page 45 of 79
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(a) What are the two (2) key impacts/changes to their cashflow? (b) What is the change in the amount of their outgoing commitments? Demonstrate how you arrived at this figure.
Please note: you are not expected to discuss any GST or taxation implications
. Student response to Task 4: Question 5
(a)
Slightly higher repayments on new Commercial loan repayments & less cash in general working account of the business. (b)
Slight increase in mortgage repayments from $2,600 per month split evenly ($5200 total monthly) to $5360 on a same term of 15 years. There is around $160 increase in repayments. Task 4: Question 6
(a)
Refer to Task 3 and list at least two (2) of the security instruments to be used for this transaction. (b)
What would the impacts be for the individuals and/or companies if the lender was to call upon the securities?
Student response to Task 4: Question 6
( A)
(B) Page 46 of 79
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Task 4: Question 7
Provide two (2) examples of any legal, financial or other issues that the client should be aware of when applying for credit in the name of a trust — for example, additional documentation that may be required, taxation issues or fees.
Hint/Tip:
Refer to the Toolbox for a helpful link about trusts.
Student response to Task 4: Question 7
When applying for credit in the name of a Trust, there are several documents that the Bank will need in order to process a Trust application:
A certified copy of the stamped trust deed.
A certified copy of the company constitution (if there’s a company trustee).
Identification for all trustees, directors of trustees and beneficiaries of the trust.
(Task 4 questions 1-7: 500 words)
Notes:
To complete this task you will need to refer to the Toolbox
and sections True Blue Pty Ltd trading as True Blue Real Estate
and ‘
Lending organisation’s guidelines, policies and procedures, Legislative requirements, Loan verification and audit standards’ document found in the
Toolbox. You may also need to conduct your own independent research to answer these questions.
Assessor feedback for Section 2: Task 4 — Detailing analysis findings:
[insert feedback]
Date assessed:
Click here to enter a date
Does the student need to resubmit?
Questions that need to be resubmitted
First submission
Resubmission
To pass this subject, you will need to be assessed as DEMONSTRATED for either your first submission or your resubmission.
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Section 3: Case Study 3 — Rahn and Deepa Singh – Property Development Finance
The case study can be located in the Subject room
Task 1— Identify the clients’ complex broking needs
Task 1: Question 1
It is the broker’s responsibility to understand the client’s business, potential risks, their history, experience and business performance. You will also need to understand specific aspects of the transaction such as their intended goals, objectives and requirements in purchasing the property.
Prepare a list of questions that you would ask Rahn and Deepa in order to gather information in preparation of the loan application for their investment property development. Your questions should uncover the following areas:
•
their future goals, employment history, experience in project management, financial position, attitude to risks and the property purchase
•
the complex features of the proposed construction financing transaction and options for 100% funding •
the identification of potential risks involved with construction loans and Rahn and Deepa ’s tolerance for
risk
•
the financial aspects of the transaction including, progressive payments and cost over-runs
•
the financial position of the borrowers and their capacity to meet project costs
•
experience in managing a construction project and whether they intend to use other building specialists or project managers
•
the customers intention to undertake another project after completion •
the customer’s plans for management of the rental and sale of one unit
if the project exceeds the projected amounts, how would they manage the extra costs.
(800 words) Student response to Task 1: Question 1
You have both mentioned the two properties which you would like to retain are long term investments which you
hope to leave to your children. Are we able to discuss your future goals?
I understand your accountant has recommended you consider undertaking an Investment property development in your own personal names as this could assist with reducing tax through negative gearing. Could you please let me know what experience you both have in project management?
As part of your loan application, I will need to review your current financial position, do you mind if we go through that now?
Once we have reviewed your financial position, assets and liabilities as well as contracts with your builder, we will
need to review your attitude to risks and the property purchase.
For your particular scenario, there are a number of complex features of the proposed construction financing transaction and we will need to review options for 100% funding of this loan.
We will need to review any potential risks involved with the construction loans of the 3 units and your tolerance for risk.
I will require some further information regarding the financial aspects of the transaction which will include the progressive payments and cost over-runs.
As part of your financial assessment, we will need to understand your financial position and capacity to meet project costs? We will need to review that today. Page 48 of 79
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In regards to the construction of the project, will you be using professionals as in Building specialists or project managers given this is a property development application and considered complex lending.
Once this project has been completed, has your Accountant made any further recommendations regarding undertaking another project or do you have any intentions to undertake another project after completion?
Have you both thought about your plans for management of the rental property once it’s completed? What rental income were you expecting to obtain and do you have an appraisal? Will you also have an agent who will be looking after the sale of one unit once completed? This might be something you both will need to consider early on in the process.
In regards to the project potentially exceeding the projected amounts, do you have sufficient funds to cover the additional costs? Such as fencing and landscaping? How will you manage the extra costs if you do not have the additional funds? Assessor feedback for Section 3: Task 1 — Identify the clients’ complex broking needs:
[insert feedback]
Date assessed:
Click here to enter a date
Does the student need to resubmit?
Questions that need to be resubmitted
First submission
Resubmission
To pass this subject, you will need to be assessed as DEMONSTRATED for either your first submission or your resubmission.
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Task 2 — Prepare complex broking options
You are required to prepare a proposal for Rahn and Deepa outlining the loan approval process and the transaction risks they should be aware of.
Prepare the proposal document, in a suitable format, and explain the consumer loan options available to Rahn and Deepa. Outline the process that will need to take place for them to complete the purchase of the property and construction of the three units.
In developing your report, you should cover the following:
1.
Who the parties to the loans are. 2.
Provide Rahn and Deepa with two initial loan products that would meet their requirements. Option 1: Residential home loan secured by the family home to provide the required equity Option 2: Property development loan to assist with purchase of land and construction.
3.
Your recommendation for the best loan structure option for each loan, including:
•
amounts
•
security/collateral for each loan
•
terms
•
repayment types
•
LVRs for each loan
•
explanation why each of the loans are suitable for the clients. 4.
Provide Rahn and Deepa with a preliminary assessment, as required under your regulatory responsible lending obligations, outlining the three (3) lenders that provide the product required to facilitate this transaction, and advise the client of the product type, loan term, interest rate, ongoing fees and monthly repayment for each of the products.
5.
Describe the procedure, from initial interview to unconditional loan approval, including documentation required from Rahn and Deepa .
Ensure you mention the compliance documents you need to complete.
6.
Describe the client responsibilities, so Rahn and Deepa understand the facilities being proposed. 7.
Outline the risks (potential and real) of which Rahn and Deepa should be made aware
of, including using their own home as security. 8.
Prepare a full funding description including a summary of fees and charges for the initial purchase of the land through to completion of project. Ensure you include the costs for setup and those of the lender. 9.
Prepare a time line for the project detailing payments and where funds will be obtained from. 10.
A request for the client to inform you of any questions about the transaction and/or provide an instruction for you to proceed.
11.
Advise which relevant disclosures need to be made regarding broker remuneration.
(800 words)
Notes:
Any assumptions you make should be listed, and not be in conflict with the case study information already provided.
You are to write a report to clients demonstrating your professional writing skill, not simply commenting on each of the points detailed above. The use of tables in the report, to set out some of the numeric information, may be of benefit.
Student response to Task 2
Answer here
Customer(s) full name(s) Rahn Singh & Deepa Singh
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Address
26 Nowry Road, Yourtown 1234 (since 2005)
Phone and e-mail
0409 988 111 & 0146 234 577
Proposed finance
Interest rates and repayments may change if the lender changes its interest rate.
Lender:
Split 1 Purpose: Finance amount:
Interest structure: Interest rate:
Term:
Repayments:
Other features:
Split 2
Purpose: Finance amount:
Interest structure: Interest rate:
Term:
Repayments:
Other features:
Total loan amount
$
Fees payable by you to us. These fees are payable by you.
$
Commission is payable for:
Commission payable by:
Commission payable to:
Reasonable estimate of commission: % of the amount of credit limit shortly after the finance is provided. We estimate this to be $ % per annum of your amount owing from time to time payable monthly. We estimate the largest monthly payment to be $ Page 51 of 79
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Assessor feedback for Section 3: Task 2 — Prepare complex broking options
[insert feedback]
Date assessed:
Click here to enter a date
Does the student need to resubmit?
Questions that need to be resubmitted
First submission
Resubmission
To pass this subject, you will need to be assessed as DEMONSTRATED for either your first submission or your resubmission.
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Task 3 — Implement complex loan structures
Rahn and Deepa have accepted your recommendations and have given you authority to proceed with their application.
As part of implementing their loan application you are required to prepare a formal written loan submission to the lender for pre-approval.
Note:
Lender templates, credit policies and submission requirements vary from lender to lender. For this task, you can use the template called ‘Credit Memorandum’ (or follow the structure as a guide)
and/or any of the other example tables provided in the Toolbox.
Your loan submission must include:
•
details of borrower and their contact details
•
borrowers’ backgrounds including ability to manage project or possible use of building expert
•
an overview of the proposal — what the finance is for the proposed structure and loan recommended. Include:
–
product types
–
deposit amount (if required)
–
loan amounts
–
terms
–
interest rates
–
interest repayments
•
full details of the security being offered •
a funds-to-complete table, include statutory costs and any relevant fees
–
the loan for the two remaining units (loan amount will be 80% of the completion value)
–
outline the debt servicing position –
the projected rental income –
interest only repayments
–
the security and LVR position
•
a highlight the relevant risks. Include transactional, economic and personal risks and how they can be mitigated
•
any other information that is relevant to assist the lender provide an approval
•
your comments and recommendations
•
a list of the documents that you would attach in your written submission. (You can assume that you have all of the necessary approvals for the construction and have obtained a valuation).
(800 words)
Notes:
Any assumptions you make should be listed, and not be in conflict with the case study information already provided.
You are to write a formal submission to the lender, or complete a word document template and copy and paste into the student response box. Student response to Task 3
Answer here
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Assessor feedback for Section 3: Task 3 — Implement complex loan structures:
[insert feedback]
Date assessed:
Click here to enter a date
Does the student need to resubmit?
Questions that need to be resubmitted
First submission
Resubmission
To pass this subject, you will need to be assessed as DEMONSTRATED for either your first submission or your resubmission.
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Task 4 — Verification of applicant’s financial situation When a consumer loan falls under the protection of the National Consumer Credit Protection Act 2009
(NCCP Act), there are disclosure obligations that the broker must abide by.
Assume the following:
Rahn and Deepa’s loan falls under the NCCP Act.
You are about to provide the client with credit assistance.
You are going to charge them a fee for your service.
Task 4: Question 1
What are the two (2) disclosure documents that you must provide to the client at the initial meeting?
(4 words)
Hint/Tip:
Refer to the Toolbox for a helpful link under the heading Responsible lending obligations
Student response to Task 4: Question 1
1)
A Credit guide, which discloses the information about the services we provide, key information, our panel of lenders, information we will request from you. ( complying with NCCP Act) 2)
A quote & proposal document outlining our services for the clients review Task 4: Question 2
In order for you to collect and store client information and conduct a credit check, what document would you need to get signed by the client?
(10 words)
Student response to Task 4: Question 2
In order to do your job and provide the service that your clients expect, you will need to obtain their authorisation to gather information, such as when you conduct a credit reference check. You will also need authorisation to pass on information about them to other individuals or departments within the bank, or organisations external to the bank. This situation must be clearly explained to the client and their approval gained. This is usually by way of a signed authorisation form or, for online applications, by the applicant ticking a box to confirm that they have read a policy statement and consent to the release or exchange of relevant information. The consent must be agreed to by all parties to the loan and must usually be obtained before processing the application. Exchanging or disclosing information about an applicant without their authority could lead to action being taken against you and the bank under the Privacy Act.
Task 4: Question 3
Your client has advised you that they are not sure what the term ‘cross-collateralisation’ means. Explain what cross-collateralisation means to the client.
(50 words)
Hint/Tip:
Refer to the topic notes Student response to Task 4: Question 3
Cross-collateralization is a term used when the collateral for one loan is also used as collateral for another loan. If a Page 55 of 79
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person has borrowed from the same bank a home loan secured by the house, a car loan secured by the car, and so on,
these assets can be used as cross-collaterals for all the loans
Task 4: Question 4
Given that Rahn and Deepa want to equally own the new property, claim taxation benefits and maintain ownership if one party passes away, how should they register their ownership interest on the Certificate of Title? (10 words)
Hint/Tip:
Refer to the Toolbox for a helpful link
Student response to Task 4: Question 4
The Applicants should register their ownership interest as a “ joint tenancy” - when parties own property as joint tenants, this means that:
- All joint tenants have equal ownership and interest in the property; and
-A right of survivorship exists.
Task 4: Question 5
In Task 1 you identified risks that concern Rahn and Deepa’s property development proposal. From the list of risks you identified, choose two (2) risks and discuss the following, namely:
(a)
why you feel it is a risk to the client and/or the lender
(b)
if the risk was to eventuate, what could be the potential consequences for the clients and/or the lender
(c) your suggestions for how these risks can be mitigated.
(20 words)
Student response to Task 4: Question 5
(a
)
Answer here
(b)
Answer here
(c)
Answer here
Note:
You may also need to conduct your own independent research to answer these questions.
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Section 4: Complex Lending and Broking — Identifying, developing, presenting and implementing complex broking options
Task 1 — Complex collateral (specialised security)
Task 1: Question 1
(a) Explain what the risks are for a lender with taking rural land as security. Provide one (1) example.
(b) Explain what the risks are for the client with purchasing rural land. Provide one (1) example.
(50 words)
Student response to Task 1: Question 1
(a
)
Chemical contamination of land and/or water can be a problem in some areas. Livestock diseases may be present in an area. Plant diseases and pests may be an issue. Land usage rights can affect what you can use your property for or what outside parties can do on your property.
(b)
Contaminated land can significantly impact the decision on whether to finance the acquisition of contaminated sites or properties near noxious industries. Importantly, contamination may limit land use and increase development costs.
Task 1: Question 2
(a) Some properties are heritage listed. Explain what this means.
(b) Explain one (1) risk for the purchaser with buying a heritage listed property.
(c) Explain one (1) risk for the lender with taking a heritage listed property as security.
(100 words)
Student response to Task 1: Question 2
(a)
Heritage – listed building is historically or culturally significant in some way. A government panel has decided that it is worth preserving the character, architecture or the landscape of the property. It is basically a building that has been deemed sufficiently significant to protect from demolition or change.
(b)
It can hard for the purchaser when it comes to renovating such properties or when it is used as collateral security. This is because these properties do not appeal to the general market and can be harder to sell. (c)
Due to the property being harder to sell, this is considered higher risk property when considering them for cross –securitisation. Page 58 of 79
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Task 1: Question 3
Describe the purpose of an Environmental Site Assessment (ESA) and explain the main steps involved in producing an ESA.
(80 words)
Student response to Task 1: Question 3
The purpose of an Environmental Site Assessment (ESA) is to evaluate the contamination status of the target site including the distribution of contamination, both vertically and laterally, and to identify any potential onsite or offsite contamination sources.
While lenders are hesitant to lend money for the purchase or redevelopment of contaminated land, the greatest risk to lenders in respect of contaminated land is the unforeseen risk. Often land may not appear contaminated at the time of purchase but is later discovered when the borrower becomes insolvent. Lenders will typically require an Environmental Site Assessment (ESA) involving the evaluation of the status of land with respect to contamination — in particular, chemical contamination of soil and groundwater. The scope of an ESA may also extend to the assessment of the potential impact of contaminant migration from adjacent areas.
Task 1: Question 4
(a) Explain how an Indigenous Land Use Agreement (ILUA) might assist with the acquisition of land subject to native title.
(b) What is one (1) limitation of an Indigenous Land Use Agreement?
(50 words)
Student response to Task 1: Question 4
(a)
An Indigenous Land Use Agreement (ILUA) will be needed before it can be bought and even applies to a traditional owner. An ILUA requires the agreement of the relevant native title group, the land trustee; and may involve some costs. If all parties agree, the borrower will effectively purchase a 99-year lease for the land, similar to arrangements for property ownership in the ACT and NT.
(b)
It can only be claimed where other legal title (such as freehold) does not exist. And native title rights are typically non-exclusive, giving little opportunity to control access to land or its use
Task 1: Question 5
When borrowing against specialised security, there are often impacts such as additional loan approval processes that are required. Describe two (2) additional processes that may impact a loan application when borrowing against specialised security.
(100 words)
Student response to Task 1: Question 5
a)
The lender may require a lower LVR on the property so that it is less risk to the Lender (which means the client will need to make more of a contribution to the transaction). This may need to be discussed with the senior credit team
or the broker relationship Manager prior to the lodgement of the deal. b)
The Lender may require additional guarantees or covenants (additional loan terms and conditions) which means the process could be slowed down for the purchaser or the seller and they would need to seek professional advice before proceeding.
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Task 2 — Complex loan structures
Task 2: Question 1
(a) List three (3) types of loan transactions that may be considered to be complex loans.
(b)
Provide two (2) examples of how a client’s application with special financial circumstances (such as offering a specialized property as security or requiring a complex loan structure) might be impacted. For example, additional requirements made by the lender.
(50 words)
Student response to Task 2: Question 1
(a)
Bridging Finance, Business loans and Residential construction loans. (b)
Some lenders will not lend against some of these types of properties at all, while others may consider taking complex or specialised properties as security with varying exceptions. For example, lenders may require lower LVRs, require additional guarantees or covenants (additional loan terms and conditions) etc
Task 2: Question 2
Explain how lending limits may be impacted for loans secured by rural property.
(100 words)
Hint/Tip:
Refer to your topic notes to answer this question
Student response to Task 2: Question 2
In regards to lending limits, this can be impacted for loans secured by rural property depending on the size of the land and its location as well as what the applicants intend to use it. Some Banks will only consider accepting rural property under 2.5 hectares or require a reduced LVR if the land size is over a certain amount. Most banks are very strict when it comes to land sizes more than 10-15 hectares as well as properties located a considerable distance from a major city or town centre.
Task 2: Question 3
(a)
Provide one (1) example of when a client may require a bridging loan.
(b)
List and explain two (2) risks for the client when obtaining a bridging loan.
(75 words)
Hint/Tip:
In addition to the topic notes, you may be required to undertake your own research. There is a link provided in the Toolbox.
Student response to Task 2: Question 3
(a)
A bridging loan is a short term facility that covers the financial gap between the purchase of the new property and the sale of the existing property (b)
• Interest is calculated daily and charged monthly, which means the longer it takes you to sell your current
property, the more interest you will pay.
The client may end up selling their home for less than what they expected, which may leave them with a higher Homeloan balance than they had planned. Page 61 of 79
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Task 2: Question 4
(a)
Provide one (1) example of when a client may require an equity release product (e.g. reverse mortgage).
(b)
What three (3) factors are taken into consideration when determining how much the client can access with this type of lending?
(75 words)
Hint/Tip:
In addition to the topic notes, you may be required to undertake your own research. There is a link provided in the Toolbox.
Student response to Task 2: Question 4
(a)
A Reverse Mortgage allows a customer to access some equity, while they continue to live in their home. Eg, for home renovations, medical expenses or help with living costs. (B)
The amount of money these clients can access depends on: • Their age • The value of their home • The type of equity release they select.
Task 2: Question 5
List the supporting documentation you would request from a business client that you would need to forward to the lender along with loan application. (List a minimum of four (4))
(20 words)
Student response to Task 2: Question 5
1)
Authority to obtain credit information
2)
ATO Tax Agent Portal evidence to verify that all statutory payments are paid
3)
financial statements/tax returns for the past three years for all entities, together with any interim figures available
4)
miscellaneous supporting documentation as applicable, such as copies of rates notices, bank statements, loan
statements, share certificates (where shares are offered as security) etc
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Task 2: Question 6
(a)
As a broker you can assist the client and the lender with the loan implementation process. List a minimum of seven (7) steps that you (as the broker) can take to assist with the loan submission, from
collection of supporting documentation through to the collection of fees and settlement or loan draw
down. (b)
What steps can you take to ensure the privacy of your client’s information when sending and storing their supporting documents and loan application details?
(100 words)
Hint/Tip:
Refer to your topic notes for the suggested Implementation steps
Student response to Task 2: Question 6
1)
Collect the supporting documentation from the client, including signed privacy and consent form to proceed with assessment. 2)
Submit application file to lenders in order to apply on the homeowners’ behalf
3)
Liaise with the Bank on behalf of the applicant
4)
Answer any queries the Bank may have regarding the clients: financial position, income, assets and liabilities, Employment history, credits checks ECT… 5)
Discuss these concerns or queries with the client and go back to the Lender with additional documentation to
mitigate the deal 6)
Once approved, the Mortgage broker will need to check the conditions on the approval Letter
7)
Liaise with the client, clients solicitor ect.. Regarding conditions and make sure they are satisfied so the deal can booked in for settlement. (B) In order to ensure the privacy of the client’s information when sending and storing their supporting documents and loan application. It is important to keep a filing system up to date and extra care to be taken when sending external emails to lenders and clients. Confirming email addresses are correct as per application forms ect.. Task 2: Question 7
The implementation process can take time, organisation and require follow up. This part of the process is vital for cementing the relationship with both the client and lender. What time management tools and techniques can you use to support the implementation process to ensure it runs smoothly and is completed on time for your client and the lender? (Provide at least two (2))
(20 words)
Hint/Tip:
Refer to the Toolbox for a helpful link.
Student response to Task 2: Question 7
Time management tools would be to always ensure you are bettering your knowledge by completing time management modules such as: How to be organized, how to stop procrastinating and videos on multitasking ect..
These videos can be located via this link: https://www.mindtools.com/c3vl26l/time-management?start=61
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Assessor feedback for Section 4: Task 2 — Complex loan structures:
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Task 3 — Legislation and codes of practice
Task 3: Question 1
(a)
Identify the Legislation that amends the National Credit Code, which provides negative equity protection for reverse mortgage borrowers.
(b)
Explain what protection is provided to those consumers.
Student response to Task 3: Question 1
(a)
A “No Negative Equity Guarantee” is provided to all borrowers by ALL financial institutions as part of the regulations in the
National Consumer Credit Protection Act 2009. (b) This means the borrower can never owe more, at the time of the loan repayment, than their home is worth no matter how long they have the loan.
Task 3: Question 2
Briefly describe what a finance and mortgage broker’s obligations are under best interests duty.
Hint/Tip:
Refer to the Toolbox (40 words)
Student response to Task 3: Question 2
To help mortgage brokers in understanding their best interests obligations to the amended NCCP Act, ASIC released Regulatory Guide 273 (RG 273) ‘Mortgage brokers: Best interests duty’ to provide guidance in how to apply these obligations. RG 273 summarises the obligations when providing best interests duty: • Mortgage brokers must act in the best interests of each individual consumer to whom credit assistance is provided. (RG 273.16) • If there is a conflict of interest, when providing credit assistance, you [mortgage broker] are required to give priority to consumers interest. You must not prioritise your [mortgage broker] own interests or the interests of credit providers or third parties. (RG 273.9)
• There is a ban [for mortgage brokers and mortgage intermediaries] carrying out a scheme that is to avoid the application of the best interests' obligations, as well as a ban on conflicted remuneration. (RG 273.10)
Task 3: Question 3
Write an email to a client outlining the complaints resolution process in accordance with the Australian Financial Complaints Authority (AFCA). (Ensure that you outline what AFCA encourages clients to do before making a complaint to them.)
(100 words)
Hint/Tip:
Refer to the Toolbox for a link to AFCA. The purpose of this task is to communicate the complaints resolution process to the client. Therefore, it is important that your response is in an email format.
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Student response to Task 3: Question 3
Dear Susan, Thank you for your email In relation to your complaint, I would like to let you know we will be investigating the matter through our Internal Dispute Resolution Team. We will respond to your complaint within the next 48hrs – ( if an outcome is not reached, we will contact you and acknowledge your issue within this timeframe. In the meantime, please note when we do contact you, we will require to know the following details: -
What is the issue?
-
What outcome would assist in resolving the issue?
We will do our best to ensure we understand the resolution you are seeking, if we are unable to resolve this complaint over the phone, we will aim to do so within five working days. Please note, this process is encouraged by AFCA before they can be involved in resolving this issue. Regards, Tamara Fernandez Assessor feedback for Section 4: Task 3 — Legislation and codes of practice:
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Section 5: Ethical decision-making frameworks and principles
Before you begin this Topic, you will be required to read the case study which is located in the subject room.
Task 1 – Frame the ethical question applicable to the situation
Task 1: Question 1
Investigate whether the assumptions and client advice provided by the broker in “Scenario A”, align with industry practice. (50 words)
Student response to Task 1: Question 1
In this case, it is the brokers responsibility to update the lender that Koen had lost his job and the Broker should have notified the Lender straight away. The broker was not acting in the best interest of the client as well as giving them financial advice which was not required.
Once the lender issues the pre-approval, it is the brokers duty to notify the Lender if there are any changes to the application prior to proceeding to final. What the broker did does not align with Industry practice. Task 1: Question 2
Identify the two (2) ethical principles that arise in each of the three (3) scenarios from the case study and list them in the table below. Student response to Task 1: Question 2
Answer here
Issue Identified
Example: The broker submitted false information.
Scenario A
•
fiduciary - not acting in the clients best interest ( putting them in a position to default on their loan)
•
fidelity - not honoring the commitment to leave obligations to tell the bank the situation has changed. Scenario B
•
Autonomy - not allowing the clients to make their own decision • Justice – not treating the customers fairly and making a decision for them without consent Scenario C
•
fiduciary - not acting in the clients best interest ( putting them in a position to default on their loan)
•
fidelity - not honoring the commitment to leave obligations to tell the bank the situation has changed.
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Task 1: Question 3
The lender in Scenario A became aware of the broker’s instructions to the clients and advised the broker that his actions were not acceptable.
In their defence, the broker stated that they had, ‘heard that this was the right thing to do at a professional development day that I attended in the past’
and that ‘I confirmed this by asking other brokers who agreed with my actions’
.
Identify at least two biases that are revealed in the statements made by the broker and explain how they might impact the broker’s understanding of the situation.
(50 words)
Student response to Task 1: Question 3
1)
Saying that he “ heard” this was the right thing to do at a professional development day that he attended in the past. ( The broker has not done his own research but instead relying on the word of others as a PD day.) 2)
Confirming what the correct thing to do was by asking his fellow brokers who agreed with his actions without checking what his responsibilities as a broker was.
Task 1: Question 4
Explain what regulatory requirements may be breached if the situation in ‘Scenario B’ was not addressed?
(20 words)
Student response to Task 1: Question 4
1)
Best interest duty 2)
Mortgage broker remuneration
Task 1: Question 5
Many organisations have a vision and/or mission statement and a set of values that are visible on their website to the public and their clients.
The ethical situation that arises in ‘Scenario B’ has the potential to be in conflict a lender’s purpose and values. Identify two (2) examples where the situation in ‘Scenario B’ could be in conflict with an organisation’s strategy, purpose and/or values.
Hint/Tip:
For this task you may use Westpac’s Strategy and Purpose. A link has been provided and can be located in the Toolbox.
(20 words)
Student response to Task 1: Question 5
1)
Ethical – the broker put himself before the customer and was focused on his clawback, instead gave the lender misleading information regarding the purpose behind cancelling the loan. 2)
Performing - the Broker was not taking accountability by disclosing the truth behind the loan being cancelled.
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Task 1: Question 6
Scenario B resulted in the clients lodging a complaint with the Australian Financial Complaints Authority, (AFCA), against both the lender and the broker. Evaluate the possible impact on the lenders’ reputation if the action of cancelling the loan became known in the public domain. Explain how the organisation at fault could be impacted.
(50 words)
Student response to Task 1: Question 6
This could impact the Lender/organisations reputation should the response to the issue become part of the public domain. Where there is a great deal to be gained for doing something unethical, moral temptations are strongest when the likelihood of punishment is low, and the gain outweighs the ethical costs of doing the wrong thing. In this case the clients could go to the Current Affair and let them know the Lender cancelled their loan without their consent
and this story could cause the Organisation/ Lender huge reputational damage and impact negatively on the current business and prospective clients. Assessor feedback for Section 5: Task 1 — Frame the ethical question applicable to the situation:
[insert feedback]
Date assessed:
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Questions that need to be resubmitted
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Resubmission
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Task 2 – Determine ethical response to the situation
Task 2: Question 1
‘Scenario A’ resulted in the client’s defaulting on their home loan 12 months after settlement as it took them several months to find new employment. Each party to the transaction claimed that they received poor advice from the broker.
Identify the key stakeholders (parties) and analyse what is at stake for each of them.
(100 words)
Student response to Task 2: Question 1
Customer: The customer is at risk of defaulting on their Homeloan and that being recorded on their credit report as well as financial stress of not making their repayments on time or not at all. If they wish to refinance that will show on their credit report and may have issues with other Lenders. Broker: The Broker assured the customers that “ unless they feel that they could no longer afford to service the repayments, they do not have to tell the lender about the job loss”.. This is morally wrong and encouraging the clients to lie to the lender to keep the file progressing. His behaviour was dishonest and the clients will take the issue to AFCA
if not properly resolved. He will be facing major reputational risk as well as the risk of being unaccredited with his aggregator. Lender: The Lender will have a loan on their books which will result in default and this could have been avoided if the broker was honest with the Lender once he was aware of the male applicant losing his job. The lender will notify the Brokers aggregator that he has been dishonest and this may result in him not being able to send future deals to that particular Lender.
Task 2: Question 2
You have been asked to determine an ethical response to ‘Scenario B’. You are required to analyse the situation using the ‘RADAR’ ethical decision-making framework. Your response must include commentary on each aspect of this framework as follows:-
R
ecognising the event
A
ssessing the situation
D
eciding what to do
A
greeing the way forward
R
eporting
(150 words)
Hint/Tip:
The framework can be located in your Topic notes and a helpful link is also provided in the Toolbox.
Student response to Task 2: Question 2
R
ecognising the event – The Broker is worried about regulatory obligations and the risk of having the broker fee clawed-back by the lender. The Broker has contacted the Lender on the clients behalf and cancelled the loan. A
ssessing the situation – The Broker has cancelled the loan on behalf of the clients without seeking permission or consent. The broker warned the clients that: ‘There may be some loan break-costs that would have to be paid but that’s better than potentially defaulting on your home loan’.
D
eciding what to do – the Broker has decided to be dishonest with the client and the lender as prioritised himself first in this situation. A
greeing the way forward – The Broker should have contacted the Lender and notified them of the client losing his job
so that he is able to try and form a resolution for the clients instead of cancelling their loan without consent. R
eporting – the Lender and the Broker are now responding to a complaint lodged with the Australian Financial Page 71 of 79
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Complaints Authority (AFCA). Page 72 of 79
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Task 2: Question 3
The broker in ‘Scenario A’ was interviewed about his actions and made the following comments:
“Most of my business is settled with this particular lender and the loans manager is a personal friend of mine. There is nothing unusual about the way I handled this situation. I’m not that comfortable dealing with clients this way, but it’s the way brokers operate. I know this is true because my mentor didn’t see anything wrong by not notifying the lender”.
Identify the situational and/or psychological barriers that may have impeded the broker’s response to this ethical situation by listing a minimum of two (2) examples of conflict of interest and at least two (2) examples of where the broker’s views were biased.
(50 words)
Student response to Task 2: Question 3
Answer here
Conflicts of Interest:
•
Most of my business is settled with this particular lender and the loans manager is a personal friend of mine.
•
I know this is true because my mentor didn’t see anything wrong by not notifying the lender”.
Biased views:
•There is nothing unusual about the way I handled this situation. •
I’m not that comfortable dealing with clients this way, but it’s the way brokers operate.
Task 2: Question 4
You have been asked to determine an ethical response to ‘Scenario A’ having now heard what the broker has had to say about his actions at question 2.3 above. Name at least two (2) people or organisations you might seek guidance from as you would consider them to be ethical advisers.
(10 words)
Student response to Task 2: Question 4
Answer here
Trusted ethical advisers:
•
Finance Brokers Association of Australia Limited
•
Mortgage & Finance Association of Australia
•
AFCA
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Task 2: Question 5
Describe the strategies and
processes you would formulate for responding to the situational and psychological barriers you identified in Question 2.3 above.
(80 words)
Student response to Task 2: Question 5
Situational Barriers
Strategies
Processes
•
“Most of my business is settled with this particular lender and the loans manager is a personal friend of mine.
•
define the ethical issues •
•
I know this is true because my mentor didn’t see anything wrong by not notifying the lender”.
•
identify the consequences •
Psychological Barriers
•
There is nothing unusual about the way I handled this situation.
•
•
•I’m not that comfortable dealing with clients this way, but it’s the way brokers operate. •
•
Assessor feedback for Section 5: Task 2 — Determine ethical response to the situation:
[insert feedback]
Date assessed:
Click here to enter a date
Does the student need to resubmit?
Questions that need to be resubmitted
First submission
Resubmission
To pass this subject, you will need to be assessed as DEMONSTRATED for either your first submission or your resubmission.
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Task 3 – Develop implementation plan and carry out ethical response to the situation
As the compliance manager for the lender, you have been asked to implement an ethical response to Scenario B in order to set out what conduct is expected across the broker network.
Important:
Although you will need to consider the ethical situation described in Scenario B, the focus of your response to the following questions needs to be on developing a plan to implement changes within the lender organisation and the broker network. You are required to develop an implementation plan, as follows:
Task 3: Question 1
Identify:
(a)
what data needs to be gathered.
(b)
which parties you will need to communicate with
(c)
the sequence of the steps that you will take to complete these tasks.
(75 words)
Student response to Task 3: Question 1
Implementation planning is crucial for putting knowledge into practice. Ethical decision-making must be based on a reliable process to ensure that the implementation strategy is well founded, as follows:
(A)
Gather the facts & define the ethical issues (B)
Identify the affected parties (stakeholders) (C)
Identify the consequences and identify the obligations (principles, rights, regulations and the law) (D)
Think creatively about potential actions and decide on the proper ethical actions. Task 3: Question 2
Identify a minimum of three (3) examples of reasoning or rationalisation that may be encountered by someone speaking up on ethical issues and suggest how you would respond to those behaviours.
(25 words)
Student response to Task 3: Question 2
Answer here
Reasoning/Rationalisation
Appropriate Response
•
Everyone is doing it Is this the correct process for completing this task sufficiently?
The action was necessary
Was this done in the best interest of the client?
It is just part of the job
Is this information true and accurate regarding this client? Page 75 of 79
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Task 3: Question 3
As stakeholders may be impacted by an ethical response, it is important to manage stakeholder risks and concerns that might arise during this process.
(a) Identify the four (4) steps in the stakeholder risk management process and outline the key objectives of each step in the table below. (b)
Describe the communication strategies that you would use to ensure that the risks are mitigaged and
that your stakeholder’s concerns are acknowledged.
(50 words)
Hint/Tip:
Refer to your Topic notes.
Student response to Task 3: Question 3
(a)
Answer here
Process: Stakeholder Risks Management Steps
Key objectives:
•
Step 1: Who is concerned or who is interested?
•
Identifying the key stakeholders; These can be clients, colleagues, senior management, suppliers, and regulators. Stakeholders can be both opponents and supporters of the project.
•
Step 2: Analyze and quantify the risk
•
Evaluate the key stakeholders; who is their interest, how can they influence the project ect…
•
Step 3: Developing actions
•
Consideration should be given as to how to make better use of supporters and minimize the impact of opponents. Finding out the following: who needs the
information, what information and how often? •
Whistle blower protections
•
Effective arrangements for handling disclosures from
whistle-blowers should include documented processes to: • receive whistle-blower disclosures • assess the concerns and investigate them if necessary • raise the concerns with the subjects and seek redress or correction
(b)
Analyse and quantify the risk & Developing actions
Task 3: Question 4
(a)
Under what circumstances would you seek support from a trusted colleague
in order to effectively carry out the ethical response? Provide three (3) examples in the table below.
(b)
Under what circumstances would you act independently
in order to effectively carry out the ethical response? Provide a minimum of three (3) in the table below.
(20 words)
Student response to Task 3: Question 4
Seek Support from a Trusted Colleague:
When the issue involves Stakeholders •
When the issue involves external parties •
When it involves a breach of privacy for a customer Page 76 of 79
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(a) (b)
Assessor feedback for Section 5: Task 3 — Develop implementation plan and carry out ethical response to the situation:
[insert feedback]
Date assessed:
Click here to enter a date
Does the student need to resubmit?
Questions that need to be resubmitted
First submission
Resubmission
To pass this subject, you will need to be assessed as DEMONSTRATED for either your first submission or your resubmission.
Page 77 of 79
Act Independently:
•
Client wants to change loan purpose after submission and broker will need to notify the Lender • Client complaint
•
Client has not disclosed a debt which needs to be resubmitted to Lender
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Task 4 – Evaluate the outcomes of the ethical response
Case Study: One of Peta’s most important customers called yesterday seeking an explanation for the delay in receiving a valuation report for a loan application he had lodged last week. Peta had asked a colleague Alex to order a valuation (normally completed within five days), but it had not arrived.
When Peta asked Alex whether the valuation instructions had been issued, Alex said, “I sent them by email to the valuer a week ago”. Later, as Peta passed Alex’s desk and “woke” the laptop from the screensaver, Peta could clearly see that the email was sent just two days ago. This was typical of the poor customer service provided by the organisation due to ongoing problems with staff levels and it is not the first time Alex had been dishonest in order to cover up mistakes.
However, Peta knew that Alex’s job was at risk and decided the right thing to do was to protect her colleague by calling the client back with the news that the valuer had received the instructions but had not yet completed the valuation report. As Peta talked with the client, she learned that the delay of the valuation had resulted in the loss of the client’s opportunity to purchase the property.
Peta later heard from the manager that the client had complained and decided to not use the mortgage broking services provided by the organisation in future. Peta listened carefully when her manager later expressed his confusion on how this client’s attitude towards him had been hostile. Peta, knowing that both
Alex and her own jobs were now at risk, said nothing in response.
Task 4: Question 1
(a)
Identify a minimum of three (3) ethical situations/actions described in the case study.
(b)
Evaluate whether the issues were resolved and if other courses of action should have been taken.
(50 words)
Student response to Task 4: Question 1
(A)
Best Interest duty, Reputational risk and Company values being disregarded. (B)
Once Peta knew that the valuation has only been ordered 2 days ago instead of the valuation being completed within 5 days which was promised to the client, she should have let her Manager know that Alex had delayed the valuation and the manager can discuss how it is unacceptable to be dishonest to her colleague as this has impacted the clients application. The Manager could have then called Valex and escalated the valuation also alerting the customer to seek an extension on Finance.
Task 4: Question 2
Determine the consequences for Peta and the other affected parties from the actions she took. (30 words)
Student response to Task 4: Question 2
-
Reputational risk
-
Not living the company values -
Not having the clients best interest as this delay in ordering the valuation has cost them their property purchase
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Task 4: Question 3
Analyse what the outcomes of Peta’s actions reveal about her own and the organisation’s values.
(25 words)
Student response to Task 4: Question 3
It seems the clients best interest is not important to Peta and Alex and they do not feel comfortable approaching their Manager about resolving this issue. Peta and Alex tried to cover up an issue and did not inform their Manager who could have assisted them in getting approval for the client in time. They have not embodied the company values or behaved in an ethical manner. Task 4: Question 4
Identify improved approaches for responding to future ethical situations that might arise from the circumstances described in the case study.
(25 words)
Student response to Task 4: Question 4
They should develop an implementation plan when an issue arises: -
Gather the facts -
Define the ethical issue
-
Identify the affected parties -
Identify the consequences -
Identify the obligations -
Think creatively about potential actions
-
Decide on the property ethical action
Assessor feedback for Section 5: Task 4 — Evaluate the outcomes of the ethical response:
[insert feedback]
Date assessed:
Click here to enter a date
Does the student need to resubmit?
Questions that need to be resubmitted
First submission
Resubmission
To pass this subject, you will need to be assessed as DEMONSTRATED for either your first submission or your resubmission.
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