Leasing !

7/28/2019 Leasing !

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LEASING

BY

SHRUTI BAJAJ – 1

SALONI JAIN - 14

7/28/2019 Leasing !


A lease is a contractual agreement between a lessee and lessor.

The agreement establishes that the lessee has the right to use an assetand in return must make periodic payments to the lessor.

The lessor is either the asset’s manufacturer or an independent leasing

company.

LESSEE LESSOR

Rights to Use Asset

Consideration

WHAT IS LEASING?

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LEASING VS HIRE PURCHASE

LEASING

• ownership lies with the lessor.

• the depreciation is claimed as an

expense in the books of lessor.

• The lease rentals cover the cost of

using an asset

• lease agreements are done for longer

duration

• Repairs and maintenance of the asset

in financial lease is the responsibility

of the lessee

• In lease agreement, the total lease

rentals are shown as expenditure by

the lessee.

HIRE PURCHASE

• the hirer has the option to purchase.

• depreciation claim is allowed to the hirer

in case of hire purchase transaction

• installment is inclusive of the principal

amount and the interest for the timeperiod the asset is utilized.

• Hire Purchase agreements are done

mostly for shorter duration

• In hire purchase, the responsibility lies

with the hirer.• In hire purchase, the hirer claims the

depreciation of asset as an expense.

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TYPES OF LEASES

• Finance Lease and Operating

Lease

• Sale And Lease Back and Direct

Lease

• Single Investor Lease and

Leveraged Lease

• Domestic and International Lease

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• Finance Lease and Operating Lease: Finance lease, also known as Full

Payout Lease, is a type of lease wherein the lessor transfers

substantially all the risks and rewards related to the asset to the

lessee. Generally, the ownership is transferred to the lessee at the

end of the economic life of the asset. Lease term is spread over the

major part of the asset life. Here, lessor is only a financier. Example of

a finance lease is big industrial equipment.

• On the contrary, in operating lease, risk and rewards are not

transferred completely to the lessee. The term of lease is very small

compared to finance lease. The lessor depends on many different

lessees for recovering his cost. Ownership along with its risks and

rewards lies with the lessor. Here, lessor is not only acting as a

financier but he also provides additional services required in the

course of using the asset or equipment. Example of an operating leaseis music system leased on rent with the respective technicians.

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Sale And Lease Back and Direct Lease: In the arrangement of sale and leaseback, the lessee sells his asset or equipment to the lessor (financier) with anadvanced agreement of leasing back to the lessee for a fixed lease rental perperiod. It is exercised by the entrepreneur when he wants to free his money,invested in the equipment or asset, to utilize it at whatsoever place for any

reason.On the other hand, direct lease is a simple lease where the asset is either

owned by the lessor or he acquires it. In the former case, the lessor andequipment supplier are one and the same person and this case is called ‘bipartitelease’. In bipartite lease, there are two parties. Whereas, in the latter case, thereare three different parties viz. equipment supplier, lessor, and lessee and it is

called tripartite lease. Here, equipment supplier and lessor are two differentparties.

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• Single Investor Lease and Leveraged Lease: In single investorlease, there are two parties - lessor and lessee. The lessor

arranges the money to finance the asset or equipment by

way of equity or debt. The lender is entitled to recover

money from the lessor only and not from the lessee in case

of default by lessor. Lessee is entitled to pay the lease rentalsonly to the lessor.

• Leveraged lease, on the other hand, has three parties –

lessor, lessee and the financier or lender. Equity is arrangedby the lessor and debt is financed by the lender or financier.

Here, there is a direct connection of the lender with thelessee and in case of default by the lessor; the lender is also

entitled to receive money from lessee. Such transactions are

generally routed through a trustee.

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• Domestic and International Lease: When all the partiesof the lease agreement reside in the same country, it is

called domestic lease.

• International lease are of two types – Import Lease and

Cross Border Lease. When lessor and lessee reside insame country and equipment supplier stays in differentcountry, the lease arrangement is called import lease.

When the lessor and lessee are residing in two differentcountries and no matter where the equipment supplier

stays, the lease is called cross border lease.•

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BIBLIOGRAPHY

• www.wikipedia.com

• www. efinancemanagement.com

• www.facebook.com

http://www.wikipedia.com/

http://www.facebook.com/

http://www.facebook.com/

http://www.wikipedia.com/

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