LEASE A LEASE REPRESENTS AN AGREEMENT THAT GIVES CONTROL OVER ASSETS OWNED BY THE LESSOR TO THE...
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Transcript of LEASE A LEASE REPRESENTS AN AGREEMENT THAT GIVES CONTROL OVER ASSETS OWNED BY THE LESSOR TO THE...
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LEASE
A LEASE REPRESENTS AN AGREEMENT THAT GIVES CONTROL OVER ASSETS OWNED BY THE LESSOR TO THE LESSEE FOR A SPECIFIC PERIOD OF TIME UPON THE PAYMENT OF AN AGREED-UPON PAYMENT, RENT.
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TYPES OF LEASES
IN NON-REAL ESTATE LEASING THERE ARE SEVERAL TYPES OF LEASES:
OPERATING LEASE
CAPITAL (OR FINANCIAL) LEASE
CUSTOM HIRE
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OPERATING LEASE USUALLY A SHORT-TERM RENTAL
ARRANGEMENT IN WHICH THE RENTALCHARGE IS CALCULATED ON A TIME BASIS.
SUCH AS THE HOUR OR THE DAY, ETC. THE LESSEE PAYS THE DIRECT COST
SUCH AS FUEL AND LABOR.
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CAPITAL OR FINANCIAL LEASE
A LONG - TERM CONTRACTUAL ARRANGEMENT IN WHICH THE LESSEE ACQUIRES CONTROL OF AN ASSET IN RETURN FOR RENTAL PAYMENTS.
USUALLY RUNS FOR SEVEAL YEARS AND CANNOT BE CANCELLED WITHOUT PENALTY.
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IS FULLY AMORTIZED, MEANING THAT THE PRESENT VALUE OF THE LEASE PAYMENTS EQUALS THE FULL PRICE OF THE LEASED EQUIPMENT.
MAY HAVE A PRUCHASE OPTION AT THE END OF THE LEASE.
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CAPITAL VS. OPERATING LEASECAPITAL LEASE TRANSFERS SOME
OF THE RISKS OF OWNERSHIP TO THE LESSEE.
MEETS AT LEAST ONE OF THE FOLLOWING REQUIREMENTS:
(1) OWNERSHIP TRANSFERS TO THE LESSEE BY THE END OF THE LEASE TERM
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2) LESSEE HAS AN OPTION TO PURCHASE THE PROPERTY AT A BARGAIN PRICE.
3) THE LEASE TERM IS FOR 75% OR MORE OF THE REMAINING USEFUL LIFE OF THE ASSET.
4) THE PRESENT VALUE OF THE LEASE PAYMENTS IS EQUAL TO OR MORE THAN THE FAIR MARKET VALUE OF THE PROPERTY
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ISSUES IN CAPITAL LEASINGADVANTAGES:CONSERVATION OF WORKING
CAPITALNEARLY 100% FINANCING THE USE OF MODERN EQUIPMENT POSSIBLE TAX BENEFITS
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EVALUATION OF A LEASE VS. PURCHASE
MAY BE EVALUATED BY LOOKING AT THE PRESENT VALUE OF CASH FLOWS FOR EACH OPTION.
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PROBLEM $ 30,000 TRUCK 35% TAX BRACKET 12% COST OF CAPITAL PRUCHASE
30% DOWN PAYMENT LEVEL PAYMENTS 10% INTEREST 5 YEARS
LEASE 5 YEAR LEASE ANNUAL PAYMENTS OF $7,000