Liquidity Requirements : Netting Contributions to portfolio or not ??

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Viceroy

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This has been messing with me for a while, and it’s now or never, so :
In 2013 AM, Q6-C : A Foundation needs (6.343.800 + 422,920)$. At the beginning of the year, the foundation receives a 2,000,000 contribution. So the Liquidity Requirement is the net amount = 4,766,720. So far so good, and I find this logical.
In 2014 AM, Q1-B : A couple needs (60,000 + 25,000)$. However, the couple is a net saver of 35,000$. Their liquidity requirement is the not net amount of 85,000$.
Can anyone explain to me the rationale here ? Is there even one ?
 
This was the 2014 question btw.
Also, i think the key is that their contributions are immediate put into the investment account. The liquidity requirement is normally the NET expense figure each year.
For a foundation and endowments, i can only imagine that we always take off contributions from the spending amount in order to calculate the liquidity requirement.
If the Indiv PS question stated that they make more in salaries then they do in expenses, but they don’t contribute to their investment account then i think the answer would be different. But i’ve not seen a question like this and it will be very unlikely that it could come up.
 
What goes in the liquidity constraint section is anything that income doesn’t cover. Or to rephrase it, it’s anything that will be generated from investments.
take a look at 2011 AM Q2 mock
 
pokhim wrote:
This was the 2014 question btw.
Also, i think the key is that their contributions are immediate put into the investment account. The liquidity requirement is normally the NET expense figure each year.
For a foundation and endowments, i can only imagine that we always take off contributions from the spending amount in order to calculate the liquidity requirement.
If the Indiv PS question stated that they make more in salaries then they do in expenses, but they don’t contribute to their investment account then i think the answer would be different. But i’ve not seen a question like this and it will be very unlikely that it could come up.
Click to expand...
Sorry , it was indeed 2014, corrected the post.
I also suspect that it had something to do with the fact that they immediately transfer it.
I guess that I’ll go with the rule of thumb of no netting for Individuals, since by default they immediately put the savings in the portfolio (unless, as you stated, it is the unusual case that they don’t immediately contribute the savings), but netting for endowment and foundations.
Txs, man.
 
AlmostDoneIII wrote:
What goes in the liquidity constraint section is anything that income doesn’t cover. Or to rephrase it, it’s anything that will be generated from investments.
take a look at 2011 AM Q2 mock
Click to expand...
I am afraid that it is slightly more nuanced. IMO Pokhim nailed it.
 
Viceroy wrote:
This has been messing with me for a while, and it’s now or never, so :
In 2013 AM, Q6-C : A Foundation needs (6.343.800 + 422,920)$. At the beginning of the year, the foundation receives a 2,000,000 contribution. So the Liquidity Requirement is the net amount = 4,766,720. So far so good, and I find this logical.
In 2014 AM, Q1-B : A couple needs (60,000 + 25,000)$. However, the couple is a net saver of 35,000$. Their liquidity requirement is the not net amount of 85,000$.
Can anyone explain to me the rationale here ? Is there even one ?
Click to expand...
I just had the same exact question. No consistency what so ever but here is my rational. The net saves of 35k in the 2014 exam probably occur at the end and thus are not available for set aside as cash. The foundation’s contributions are made on jan 1st, thus it is availbable.
Tbh, you have a very valid question and im concerned with what the graders may look for.
 
AlmostDoneIII wrote:
What goes in the liquidity constraint section is anything that income doesn’t cover. Or to rephrase it, it’s anything that will be generated from investments.
take a look at 2011 AM Q2 mock
Click to expand...
Dude I just had a look at 2011 AM Q2 and in this example, they have net expenses (negative CF)
We are adressing net savings (positive CF).
 
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