Leasing – Introduction In Addition To Types

Leasing may last defined every bit a method of acquiring correct to usage an equipment or property for consideration. Leasing has function out a pop rootage of finance for the companies requiring equipments similar computers, air crafts, plants, trucks etc.

Steps involved inwards leasing :

  1. Decission of the leasee regarding the property required as well as decide the manufacturing as well as other requirements such every bit toll warranties, damage of delivery etc.
  2. Entering into a lease understanding alongside the lessor containing the rights as well as obligations of both the lessor as well as lessee.
  3. Signing the lease agreement.
  4. Finally lessor intimates the manufacturer / supplier to render the property to lessee. The lessor makes the payment to supplier subsequently the property has been delivered to lessee.

Types of Lease Agreements :

  • Financial Lease : According to Accounting Standard 19, Lease issued past times the institute of Chartered Accountants of India, a finance lease is i which satisfies whatever i or to a greater extent than of the next condiitons :
    1. The lessor transfers ownership of the property to the lessee past times the goal of the lease term.
    2. The lessee has the alternative to buy the property at a toll which is expected to last sufficiently lower than the fair value at the engagement the alternative becomes exercisable such that, at the inception of the lease it is reasonably sure enough that the alternative volition last exercised.
    3. The lease term is for the major role of the economical life of the property fifty-fifty if championship is non transferred.
    4. At the inception of the lease, the acquaint value of the minimum lease payments amounts to at to the lowest degree substantially equal to the fair value of the leased asset.
    5. The leased property is of a specialized nature such that entirely the lessee tin usage it without major modifications beingness made.
Finance lease is also called every bit “close-end lease” nether which all the risks incidental to ownership of the property as well as the benefits arising at that spot from are transferred to lessee except the legal championship which may or may non last eventually transferred.
  • Operating Lease : Operating lease is i which does non satisfy whatever of the weather condition of finance lease. It is a lease nether which the lessee volition convey the correct to usage the leased belongings for a express stream of fourth dimension as well as does non plough over lessee all the benefits as well as risks that are associated alongside the asset. the lessor is responsible for the maintenance of the asset, insurance as well as all other expenditure. It is preferred where at that spot is a probability of rapid obsolescence of the asset. It is also called every bit “open goal lease agreement
  • Sale as well as Lease Back : Under this a delineate of piece of job solid sells an property to or as well as then other person, who inwards plough leases dorsum the property to the firm. The delineate of piece of job solid gets the marketplace toll as well as the correct to usage the asset. the delineate of piece of job solid pays the periodic rental payments to the lessor. It is beneficial to both the lessor as well as the lessee every bit the lessee gets immediate cash as well as improves his cash stream position. The lessor gets the do goodness inwards damage of taxation credits due to depreciation. It is pop alongside the companies facing brusk term liquidity crises.
  • Leveraged Leasing : This shape of leasing has function out rattling pop inwards modern days. un delineate inwards other forms of leasing inwards this type at that spot volition last iii parties viz, lessee, lessor as well as the lender. The seat of the lessee is same every bit inwards instance of other forms of lease, lessee agrees to pay the periodic payments over the lease stream as well as gets the correct to usage the leased asset. The seat of lesser even as well as then differs. he volition larn the property entirely past times paying role of the cost tell 30%. The residual of 70% is provided past times a financier (lender) every bit a loan to lessor on the safety of asset, every bit good assignment of the leased assets rental payments.

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