Leasing
Final Paper on Lease Divya Kulkarni
Northwest University
Financial Management
Prof. Dan Yeomans
April 20, 2015
Lease
Lease is a rental agreement that extends for a year or more and involves a series of fixed payments. A lease agreement gives guarantees to the lessee (the renter) use of an asset and guarantees the lessor (the property owner) regular payments from the lessee for a specified number of months or years. Both the lessee and the lessor must uphold the terms of the contract for the lease to remain valid. (Lease Definition, 2003)
Importance and Advantages of lease
The leasing process is faster, simpler, and often less costly than getting a loan for buying all these fixed assets.
The lease helps to set expectations for the lessee and helps to keep understanding between lessee and lessor during the rental term.
Monthly rent payment for lease finance will be operating expenses. It will allow deducting total income. Therefore, many companies try to get tax benefits in lease financing.
Cancellation options are valuable.
One of the important points is that leasing is more convenient way of finance. You can fix your need of asset. (Importance of Lease Finance, 2011)
Disadvantages of lease
Even though lessee is not the owner, lessee is responsible for repair and maintaining the asset as specified by the agreement
The main disadvantage of leasing is that you never own the asset
Types of leases
There is list of leases. However, I would like to explain about finance lease and operating lease.
Financial Lease: In a financial lease, 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 agreement. It is necessary to show the leased asset on the balance sheet as a capital item, or an item that has bought by the company.
In finance lease, the lessor is only a financier. For example, a finance lease of big industrial equipment.
Northwest University
Financial Management
Prof. Dan Yeomans
April 20, 2015
Lease
Lease is a rental agreement that extends for a year or more and involves a series of fixed payments. A lease agreement gives guarantees to the lessee (the renter) use of an asset and guarantees the lessor (the property owner) regular payments from the lessee for a specified number of months or years. Both the lessee and the lessor must uphold the terms of the contract for the lease to remain valid. (Lease Definition, 2003)
Importance and Advantages of lease
The leasing process is faster, simpler, and often less costly than getting a loan for buying all these fixed assets.
The lease helps to set expectations for the lessee and helps to keep understanding between lessee and lessor during the rental term.
Monthly rent payment for lease finance will be operating expenses. It will allow deducting total income. Therefore, many companies try to get tax benefits in lease financing.
Cancellation options are valuable.
One of the important points is that leasing is more convenient way of finance. You can fix your need of asset. (Importance of Lease Finance, 2011)
Disadvantages of lease
Even though lessee is not the owner, lessee is responsible for repair and maintaining the asset as specified by the agreement
The main disadvantage of leasing is that you never own the asset
Types of leases
There is list of leases. However, I would like to explain about finance lease and operating lease.
Financial Lease: In a financial lease, 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 agreement. It is necessary to show the leased asset on the balance sheet as a capital item, or an item that has bought by the company.
In finance lease, the lessor is only a financier. For example, a finance lease of big industrial equipment.