Strand 3 — Number
Financial Maths
1st Year · 2nd Year · 3rd Year (Junior Cert)
- ✓By the end of this lesson students will be able to calculate income tax, Universal Social Charge (USC), and Pay Related Social Insurance (PRSI).
- ✓By the end of this lesson students will be able to perform currency conversions using given exchange rates.
- ✓By the end of this lesson students will be able to calculate cost price, selling price, profit, loss, and percentage profit/loss.
- ✓By the end of this lesson students will be able to understand and apply key financial terminology such as gross pay, net pay, tax credits, and exchange rates.
Key concepts
The total amount of money earned by an individual before any deductions (such as tax, USC, or PRSI) are taken out.
A tax levied by the government on an individual's income. It is calculated based on taxable income, tax rates (standard and higher), and reduced by tax credits. The standard rate cut-off point is the amount of income taxed at the standard rate.
Amounts that can be deducted from the total income tax calculated, reducing the amount of tax an individual has to pay.
A tax payable on gross income from all sources, applied in different bands with varying rates. It is calculated on gross income before any tax credits are applied.
Contributions paid by employees and employers to fund social welfare benefits. It is usually calculated as a percentage of gross income.
The amount of money an individual receives after all deductions (Income Tax, USC, PRSI, etc.) have been subtracted from their gross pay.
The process of exchanging one currency for another using an exchange rate. An exchange rate tells you how much one currency is worth in terms of another.
The price at which a retailer or business buys an item from a supplier.
The price at which a retailer or business sells an item to a customer.
Occurs when the selling price of an item is greater than its cost price. It is the money gained from a sale.
Occurs when the selling price of an item is less than its cost price. It is the money lost from a sale.
The profit or loss expressed as a percentage of the cost price. This shows the profitability or loss in relative terms.
Key facts to remember
- 1Gross pay is the total earnings before any deductions.
- 2Net pay is the amount received after all deductions (tax, USC, PRSI) have been subtracted.
- 3Tax credits reduce the amount of income tax an individual has to pay.
- 4Profit occurs when Selling Price > Cost Price; Loss occurs when Selling Price < Cost Price.
- 5Percentage profit or loss is always calculated as a percentage of the Cost Price.
- 6Exchange rates are used to convert amounts between different currencies.
- 7Income tax, USC, and PRSI are mandatory deductions from gross income in Ireland.
Worked examples
Example 1
John's gross annual income is €40,000. His standard rate cut-off point is €36,800. The standard rate of tax is 20%, and the higher rate is 40%. His tax credits are €3,300. USC rates are: 0.5% on the first €12,012, 2% on the next €8,472, and 4.5% on the balance. PRSI is 4% of gross income. Calculate his net annual pay.
Answer
John's net annual pay is €31,952.28.
Remember to calculate tax credits after determining the gross tax.
Example 2
The exchange rate between Euro and US Dollar is €1 = $1.08. (a) Convert €500 to US Dollars. (b) Convert $756 to Euro.
Answer
(a) €500 is $540. (b) $756 is €700.
Always pay attention to which currency you are converting from and to, and whether to multiply or divide by the exchange rate.
Example 3
A shop buys a smartphone for €250. (a) If they sell it for €320, calculate the profit and the percentage profit. (b) If they sell it for €200, calculate the loss and the percentage loss.
Answer
(a) Profit = €70, Percentage Profit = 28%. (b) Loss = €50, Percentage Loss = 20%.
Percentage profit or loss is always calculated based on the Cost Price.
Common mistakes
- ✗Calculating percentage profit or loss based on the selling price instead of the cost price.
- ✗Incorrectly applying exchange rates (e.g., multiplying when division is required, or vice versa).
- ✗Forgetting to subtract tax credits when calculating net income tax.
- ✗Confusing the different bands and rates for USC or income tax, leading to calculation errors.
- ✗Not showing all steps clearly, especially when calculating multiple deductions.
Exam tips
- ★Read the question carefully to identify all given values (gross pay, rates, credits, prices, exchange rates).
- ★Break down complex problems into smaller, manageable steps (e.g., calculate tax, then USC, then PRSI, then net pay).
- ★Always show your full working out for each step, as marks are often awarded for method.
- ★Double-check your calculations, especially for percentages and currency conversions.
- ★Clearly state the units (e.g., €, $, %) in your answers.
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