EM3575 - Recalculating profits: private side - means tests: method - one year
A means test uses the figure for declared income and takes away from it any money estimated to have been saved and known items of expenditure during the same period. The resulting figure represents what was available to meet living expenses. Usually, the test will cover the period of accounts. Unless there is information about capital sales and acquisitions, details of saving will have to be assumed from returned figures of interest.
A typical means test might look something like this.
| Incomings | |||
| Drawings | 9500 | ||
| Spouse’s wages | 1750 | ||
| Building Society interest | 450 | 11700 | |
| Outgoings | |||
| Mortgage | 3500 | ||
| Income Tax | 1500 | (5000) | |
| Savings | |||
| PY interest 350 @ say 7% on capital | 5000 | ||
| + interest | 350 | 5350 | |
| CY interest 450 @ say 7.5% on capital | 6000 | ||
| + interest | 450 | 6450 | |
| Increase in Savings | (1100) | ||
| _____ | |||
| ‘Available’ | 5600 |