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1. Definition of lease; Kinds of lease: 1. Operating lease; 2. Financial lease; The subject of the financial lease; Advantages and disadvantages of leasing;

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Presentation on theme: "1. Definition of lease; Kinds of lease: 1. Operating lease; 2. Financial lease; The subject of the financial lease; Advantages and disadvantages of leasing;"— Presentation transcript:

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2 Definition of lease; Kinds of lease: 1. Operating lease; 2. Financial lease; The subject of the financial lease; Advantages and disadvantages of leasing; Fee; Risks and benefits; Lease in business economics; In law; The contract : Characteristics. 2

3 A lease is a contractual agreement between the lesser (owner) and the lessee (second party) for a specified asset, which can be property, a house or apartment, business or office equipment, a car or even a horse. The lessee receives the right to total ownership for a spelled out period of time and conditions in return for payments. 3

4 Do not confuse a lease with a rental, although these words are often interchanged. A rental is for a short period of time, such as a month, where, in this case, the agreement is renewed or the terms are monthly changed. 4

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7 An operating lease is the first lease that appeared on the market. This formula is essentially goods with a high level of standardization, it can be - for example - computers, copiers. Differently from what happens in the case of finance leases, operating leases are entered into a bilateral relationship with the manufacturer of the goods. In this case, therefore, manufacturer and lesser coincide, therefore, it can be stated that: the redemption price is not always convenient as in the case of financial leasing (considering the high standardization and usability of the product on the market); the duration of the contract is significantly lower than a finance lease. 7

8 It is one of the versions of the most traditional and complete leasing and is probably the most used. It is defined "financial", because in this case the service is very close to a finalized funding operations concerning goods with a high degree of specialization. On expiry of the contract with the leasing company, the subscriber can decide whether to redeem the property or return it to the company. In this case, of course, the duration of the contract is closely linked to the nature of the leased asset and its productive life (typically from 3 to 5 years for movable property and from 25 to i30 for those properties). 8

9 The subjects of the financial lease In the financial lease there are three subjects:  The manufacturer of capital goods;  The leasing company (lesser) who buys the goods from the manufacturer and leases it to you;  The user of the asset (conductor or lessee) that is required to pay the license fees, with the option to purchase the asset at the agreed price (redemption price). 9

10 1. Finance leases fixed rate; 2. Finance leases variable rate 10

11 Remains fixed for the duration of the lease are the interest rate and the amount of each payment. The disadvantage is of not take advantage of any reduction in market interest rates. The fixed rate is recommended for those who want to be sure, from the moment of signing the contract, the measure of the rate, the amount of each payment and the total amount of debt to be repaid, regardless of changes in the market conditions. 11

12 Compared to the initial rate, the interest rate may vary, with cadences established, according to the course of one or more parameters of indexing set out in the contract. The main risk is unpredictable and substantial increase of the amount of the installments. The variable rate is recommended for those who want a rate more in line with the market trend and can support any increase in the amount of the installments. 12

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14 14 MANUFACTURER GOODS INSTRUMENTAL UNDERTAKING user Takes the leased assets financial, pay its fees and shall bear all risks and benefits AUDITORS ' LEASING 1 2 3 4

15 Acquisition of long-term assets requires enormous outlay of money, which is sometimes far beyond the financial capacity of the real user. In such a situation, the user can ask for capital goods. Leasing serves as a long- term loan that can be used for the acquisition of capital. The advantages of leasing are as follows: 15

16 1. Leasing Permits Alternative Uses A leasing arrangement provides a firm with the use and control over the assets without incurring huge capital expenditure and requiring to make only periodical rental payments. Thus, leasing saves funds for alternative uses. 2. Leasing Arrange Faster And Cheaper Credit Leasing companies are generally more accommodating than banks and other financial institutes in respect of terms of financing. It has generally been found that acquisition of assets under leasing arrangement is cheaper and faster compared to the acquisition of assets through other sources of financing. 16

17 3. Leasing Increases Lessee's Capacity To Borrow Leasing arrangements enable the lessee to use more of its own funds for working capital purposes instead of using low yielding fixed assets. The debt-equity ratio of lease does not alter because of assets acquired under lease arrangements. As such lease arrangements can resort to further borrowings in case the need arises. 4. Leasing Protects against Obsolescence Lease arrangements helps to protect the lessee against the risk of obsolescence in respect of the assets which become obsolete at a faster pace. 5. Boon For Small Firm Acquisition of assets through a leasing arrangement is particularly beneficial to small firms which can not afford to raise their capacity on account of scarcity of financial resources. 17

18 6. Absence Of Restrictive Convenience The financial institution while lending money usually attach several restrictions on the borrowers as regards management, debt-equity norms declaration of dividends etc. Such restrictions are absent in the case of lease financing. 7 Trading On Tax Shield In case of a non-tax paying lessee, the cost of financing an asset is much higher as compared to a tax-paying lessee. However, when tax-paying owns the assets, he generally passes a part of the tax benefit to the lessee by means of lower rental charge. As a result of this favor, the real cost of the asset to the lessee, works out to be lower than these it would have been if he were the owner of the assets. 18

19 Major disadvantages of leasing are as follows: 1. Deprived On Ownership In a leasing arrangement, the lessee does not get the ownership of the asset. it gives only the right to use. As such, the lessee, cannot pledge the asset for securing loan from financial institutions. 2. Deprived Of The Asset IN Case Of Default In case the lessee makes a default in rental payment, the lesser is entitled to take over the asset and the lessee has no right to prevent him from doing so. 19

20 20 For the duration of the contract, to use the good, the customer must pay a fee - determined during the negotiation phase - to the leasing company. This fee, which can be monthly, bimonthly or quarterly, has some special features: is tax deductible. It is this characteristic to make leasing very attractive compared to other financing transactions, especially for those who generate profits with a significant value. is the consideration for a service (leasing) and therefore expressed over the cost of the operation in terms of the rate applied, all of the services identified as "added value" of the leasing company. In light of this definition, it seems improper to judge the value of a transaction only in terms of the post of the royalties, apart from its contractual characteristics, as well as operational efficiency of the Company grantor. The initial fee (the "advance") is usually expressed as a percentage. The advance may also be equal to the charges later. In this case, it is called "Leasing fees constants".

21 check out this site to learn more about risks: ml 21 Benefits: check out this site to learn more about risks:

22 The assets acquired under finance lease are not legally part of its heritage as it's own gift, and therefore do not appear as assets of the balance sheet. 22

23 Building100 000Fund Admin. manufactured5000 Equipment20000Fund Admin. Equipment10000 Goods payables40000Suppliers25000 Receivable from customers80000Shareholders’ equity150000 Total190000Total190000 23 Balance Sheet

24 At the conclusion of the contract, the company must be held between the memorandum accounts, the commitment to the lease payments to be paid the sum of all due fees. So in the accounts we have: 24 Dateaccounts / descriptionGiveHave 15/06commitments for property leasing60000 creditors c / leasing60000

25 The loans account for leased assets is taken in to use the account instead Creditors c / lease is in having the subject in respect of which the application was taken. Lease payments are subject to the same tax rate. 25

26 DateAccounts/ descriptionGiveHave 15/09Leasing fee3000 Iva. Ns. Credit600 Payables / suppliers3600 15/09Payables / suppliers3600 Bank X c/c3600 15/09creditors c / leasing3000 Commitments for property leasing3000 26 The account Leasing is a loss of income and access to operating costs is put in to the economic outturn account. The fees shall be paid in advance with respect to the frequency indicated in the contract.

27 27 {You can visit this web site too: leasing\Tiscali Finanza.htm}leasing\Tiscali Finanza.htm

28 Glossary  Lease = leasing;  Operating lease = leasing operativo;  Financial lease = leasing finanziario;  The subject of the financial lease= soggetti del contratto di leasing;  Advantages and disadvantages of leasing= vantaggi e disvantaggi del leasing;  Fee= canone;  Risks and benefits= rischi e benefici di un leasing;  Lease in business economics= leasing in economia aziendale;  Lease in mathematic= leasing in matematica;  In law= in diritto;  The contract : Characteristics= caratteristiche del contratto. 28

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