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    Leasing

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    lekshmi517
    The document discusses leasing, defining it as a written agreement where a property owner allows a tenant to use the property for a specified period in exchange for rent payments. It outlines the key features of leasing, including that it allows users to have full access to equipment without paying the full upfront cost. The document also describes the main types of leasing - financial leasing, operating leasing, sale and lease back, leveraged leasing, and direct leasing - and provides details on their characteristics. Finally, it discusses the advantages and disadvantages of leasing, legal and accounting aspects, and components of a standard lease agreement.

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    Download as PPTX, PDF, TXT or read online from Scribd

    Leasing

    Uploaded by

    lekshmi517
    15K views27 pages
    The document discusses leasing, defining it as a written agreement where a property owner allows a tenant to use the property for a specified period in exchange for rent payments. It outlines the key features of leasing, including that it allows users to have full access to equipment without paying the full upfront cost. The document also describes the main types of leasing - financial leasing, operating leasing, sale and lease back, leveraged leasing, and direct leasing - and provides details on their characteristics. Finally, it discusses the advantages and disadvantages of leasing, legal and accounting aspects, and components of a standard lease agreement.

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    The document discusses leasing, defining it as a written agreement where a property owner allows a tenant to use the property for a specified period in exchange for rent payments. It outlines the key features of leasing, including that it allows users to have full access to equipment without paying the full upfront cost. The document also describes the main types of leasing - financial leasing, operating leasing, sale and lease back, leveraged leasing, and direct leasing - and provides details on their characteristics. Finally, it discusses the advantages and disadvantages of leasing, legal and accounting aspects, and components of a standard lease agreement.

    Copyright:

    Attribution Non-Commercial (BY-NC)
    Download as PPTX, PDF, TXT or read online from Scribd
    Download as pptx, pdf, or txt
    15K views27 pages

    Leasing

    Uploaded by

    lekshmi517
    The document discusses leasing, defining it as a written agreement where a property owner allows a tenant to use the property for a specified period in exchange for rent payments. It outlines the key features of leasing, including that it allows users to have full access to equipment without paying the full upfront cost. The document also describes the main types of leasing - financial leasing, operating leasing, sale and lease back, leveraged leasing, and direct leasing - and provides details on their characteristics. Finally, it discusses the advantages and disadvantages of leasing, legal and accounting aspects, and components of a standard lease agreement.

    Copyright:

    Attribution Non-Commercial (BY-NC)
    Download as PPTX, PDF, TXT or read online from Scribd
    Download as pptx, pdf, or txt
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    LEASING

    SAINTGITS INSTITUTE OF
    MANAGEMENT,
    Kottayam

    By
    Ms. Lekshmi Vijayan
    Ms. Rini Sara Zacharia
    LEASING- DEFINITION
    • A written agreement under which a property owner

    allows a tenant to use the property for a specified

    period of time and rent.

    • The lessee (person taking out a lease) agrees to pay a

    number of fixed or flexible installments over an

    agreed period to the lessor, who remains the

    owner of the asset (item) throughout the period of

    the lease.

    •
    STEPS IN LEASING
    FEATURES
    • Leasing a product is similar to renting it
    • A contract lasts over a number of years,
    usually between 2 and 10, depending on
    the cost and usable life of the product.
    • Have the full use of a piece of equipment
    without having to pay the full cost of the
    item in one go.
    • TYPES OF LEASING

    Lease

    Finance lease Leveraged leasingDirect leasing


    Operating leaseSale and Lease Back
    a)FINANCIAL LEASE (CAPITAL LEASE)

    • Long-term, non-cancellable lease


    contracts are known as financial
    leases.
    • The essential point - it contains a
    condition whereby the lessor agrees
    to transfer the title for the asset
    at the end of the lease period at
    a nominal cost.
    • At lease it must give an option to the
    lessee to purchase the asset he has
    used at the expiry of the lease.
    • High cost high tech equip.
    • The lease agreement is irrevocable.
    •

    • All the risks incidental to the asset


    ownership are transferred to the
    lessee who bears
    Ø the cost of maintenance,
    Ø insurance and repairs.
    •

    • Only title deeds remain with the


    lessor.
    •
    b) OPERATING LEASE
    • Contrast to the financial lease
    • A lease agreement gives to the lessee only a
    limited right to use the asset.
    • The lessoris responsible for the upkeep
    and maintenance of the asset.
    • The lessee is not given any uplift to
    purchase the asset at the end of the
    lease period.
    c) SALE AND LEASE BACK
    • Sub-part of finance lease
    • The owner of an asset sells the asset to
    a party (the buyer), who in turn
    leases back the same asset to the
    owner in consideration of lease
    rentals.
    • Under this arrangement, the assets
    are not physically exchanged but it
    all happens in records only.
    • Sale and lease back transaction is
    suitable for those assets, which
    are not subjected depreciation but
    appreciation, like land.
    •

    • The seller assumes the role of a


    lessee and the buyer assumes the
    role of a lessor.
    •

    • The seller gets the agreed selling price


    and the buyer gets the lease rentals.
    •
    d) LEVERAGED LEASING
    • A third party is involved beside lessor and lessee.
    • The lessor borrows a part of the purchase cost (say 8 0
    %) of the asset from the third party i.e., lender
    • The asset so purchased is held as security against the
    loan.
    • The lender is paid off from the lease rentals directly by
    the lessee and the surplus after meeting the claims
    of the lender goes to the lessor.
    •
    e) DIRECT LEASING

    • Under direct leasing, a firm acquires the


    right to use an asset from the manufacturer
    directly.
    •

    • The ownership of the asset leased out


    remains with the manufacturer itself.
    ADVANTAGES of LEASING
    • No large outlay:
    ü The cost is spread over a number of
    years; there is no need to pay the
    entire amount upfront.
    • Security:
    ü The product is still owned by the
    leasing company, meaning that
    they have better security on finance.
    •
    • Tax advantages:
    •

    • Budgeting:
    ü A fixed contract, it is relatively easy to
    budget and forecast with
    ü
    • Saving of capital
    •
    • Improvement in liquidity:
    •
    ü
    •

    •
    •

    • Flexibility and convenience


    ü The lease agreement can be tailor-
    made in respect of lease
    period and lease rentals according
    to the convenience and
    requirements of all lessees
    •
    DISADVANTAGES

    1. No Ownership
    2. Costly option - high interest rates, costlier than straight
    buying
    3. Long Term Expense
    4. Maintenance
    5. No working capital
    LEASE AGREEMENT
    • A document under which a landlord and tenant
    set forth the rights and obligations of each
    party with respect to an apartment, rental
    unit, or other real property owned by the
    landlord and used by the tenant.
    •

    • An instrument conveying the possession of real


    property for a fixed period in consideration of
    the payment of rent.
    Clauses in lease agreement
    ü Nature of the lease
    ü Description
    ü Delivery and redelivery
    ü Period
    ü Lease rentals
    ü Use
    ü Title
    ü Repairs and maintenance
    ü Alteration

    •
    •

    • DOCUMENTATION
    •

    • Requirements
    •

    • Proof for indebtedness


    •

    • Evidence availability and enforceability


    of security
    •

    • Focus on the terms of lease


    •

    • In case of default :company can take


    appropriate action
    Legal aspects of Leasing
    • The lessor has the duty to
    vDeliver the asset to the lessee
    vAuthorize the lessee to use the asset
    vLeave the asset in peaceful
    possession
    v
    § The lessee has the obligation to
    § Pay the lease rentals
    § Protect the lessors title
    § Take reasonable care of the asset
    § Return the leased asset
    v
    Accounting aspect of
    Leasing
    • Operating lease :
    • Is capitalized in the book of lesser
    •
    • Lease payments are treated as income
    of the lessor and expense of the
    lessee
    •
    • Depreciation of the assets should on
    the basis of normal depreciation
    policy of the lessor for similar assets
    •
    • Financial lease
    • Must be capitalized in the books of lessee
    •

    a)At the time of inception leased asset is shown


    as an asset of B/S of the lessee
    •

    • Its VALUE = PV of the committed lease rentals


    •

    • b)Payments are financial charges (expense in


    P/L) and principal amount (deducted from
    lease payable in B/S)
    •

    • C)Leased asset is depreciated in the books of


    lessee
    •
    Thank you

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