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SMITA PATEL CHINTAN VORA

ISHAN MEHTA DHRUV BHAYANI

KRUNAL DESAI RONAK

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What is LEASE?A lease is a contract whereby the owner of an assetgrant to another party the exclusive right to use theasset usually for an agreed period of time in return forthe payment of rent.

Parties to a Lease

Lessee--User of the Asset Lessor--Owner of the Asset

Trustee--Represents the Creditors with a Third PartyLease

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ABOUT LEASE FINANCE.

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MAP of FINANCE SOURCES

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CHARACTERISTICS....

Amount

Properties

AssetTerm

Ownership

InflationRights

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RISKS ASSOCIATED WITH LEASE FINANCING

.CREDIT RISK

.TRANSACTION RISK

.INTREST RATE RISK

.LIQUIDITY RISK

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1. Operating lease

2. Finance lease

3. Capital lease

4. Direct finance lease

5. Full payout lease

6. Guideline lease

7. Leveraged lease

8. Net lease

9. Open-end lease10. Sales-type lease

11. Synthetic lease

12. Tax lease

13. True lease

Common Lease Types of

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1.Operating Lease:

2.Finance Lease:

3. Capital Lease:

4.Direct Financing Lease :.

LEASE TYPES..

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LEASE TYPES..

5. Full Payout Lease:

6. Guideline Lease:

7.Leveraged Lease:

8.Net Lease:

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LEASE TYPES

9.Open-end Lease :

10.Sales-type Lease:

11.Tax Lease:

12.True Lease:

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Advantage:

Provides full finance : provision of 100% finance is main

benefit of leasing . if the lease borrows money from banks to

purchase the asset he gets 70 to 80% finance only. While in

case of lease he does not have to make any provision for

finance. He gets 100% finance. He will be required to pay rent

only.

Flexible : it is flexible In the sense that risk of obsolesecne

because he is not of financial lease, agreement is for the whole

useful life of asset. The lessee is required to make the rental

payment for the whole period even if the asset become

obsolete.

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Advantage:

Save from recurring cost of finance : In case asset are taken on lease, the

firm will not have to incur the cost of raising finance frequently whenever it

wants to purchase any asset.

Absence of restriction : - it is main advantage of leasing. If money is

borrowed from banks or other financial institution , they would putrestriction on borrower as regard further amt. to be borrowed dividend etc..

but in case of lease it is absolutely free from all such restriction.

Tax benefit : - both the parties get certain deduction. The lessee gets full

rent as deduction. This is higher then depreciation charges because it

includes interest and some amt. toward profit of the lesser Increase the capacity to borrows : - the lesser does not show the asset in

his balance sheet nor the future liability for payment of rentals. Hence less

debts equity ratio remains law and he will be able to borrow more funds in

future.

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Advantage:

Useful is case if fast changing technology : - it is particularly useful to thelessee in case were fast technology change are taking i.e reason why more

and more business resort to leasing in case of very costly and expensive

machines.

Faster and cheaper credit : - its is faster than if money is to be borrowed

from banks or other financial institution. Leasing company promptly

sanction the request and it is more accommodative in respect of terms of

financing.

Disadvantages:No benefit of residential value :- when a firm purchase an asset, it is hasfull right to value of asset at the end of its useful life. But the benefit is not

available to the lessee in case of lease .

No benefit of ownership : - the lessee does not get any benefit, which

would be available if he were the owner of asset e.g price of an asset has

increased considerably, the lessee cant sell it.

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Disadvantages:

High cost of leasing : - It is experience that leasing is more costly than

borrowing. The rate of interest charged very much higher than that on

borrowing. This is because the lease rental includes the cost of asset, some

profit to the lesser payment for the employing experts by the lesser and also

payment for related service. Of course if the lesser is making purchase ofasset in large scale hr gets the benefit of the lower cost and this can be form

of lower rent.

Not flexible : - In case the lessee is not able to arrange for finance for

buying an asset he will have to lease the asset. In that case, the amt. of leaserent is fixed in advance for the whole period. If the rate of interest declines

in market the borrowing can be returned and interest can be saving. But that

is not possible in a change, because rent amt. is not changed.

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Why the Lease Financing is important in this era?

Leasing is big business in the 21st century with over billions of

dollars worth of commercial equipment financing being done

by American business annually. Whether it is commercial

equipment leasing or a sale lease back, both are increasingly

being used to acquire liquid funds for a company. Financing through lease financing company can help your

business conserve working capital. And, because commercial

equipment financing frees up your working capital for other

investments or profit making activities it just makes sense to beleasing rather than buying.

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REFRENCE : http://www.allbusiness.com/businessfinance/leasing/

2540-1.html

http://en.wikipedia.org/wiki/Finance_lease

http://ideas.repec.org/a/onb/oenbmp/y2008i1b3.html

http://en.wikipedia.org/wiki/International_Lease_Finance_Corporation

OCC Bank Accounting Advisory Series, BAAS, Topic 5Leases

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THANK YOU..