According to international standard 17 ”leasing is agreement where by the lessor conveys to the lessee in return for rent the right to use an asset for.

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Presentation transcript:

According to international standard 17 ”leasing is agreement where by the lessor conveys to the lessee in return for rent the right to use an asset for an agreed period of time”

1)Lessor –owner of an asset 2)lessee-user of an asset

There are 2 parties to a lease agreement Leasing separates the ownership of an asset from its use The lessee gets the right of uninterrupted use A lease agreement is normally for 5 years. The leased asset is a tangible asset The leased agreement need not be in writing.

 The lease rental are made by the lessee to the lessor over the lease period.  The lease agreement is governed by the provisions of contract act

 It is contract that contains important provision or details of the lease arrangements  The following are the contents of lease contract: The lease period The amount of lease rental The periodical intervals The penalty for the delay or non payment of the lease rental The party who has to bear the cost of maintenance

To Lessor:  It helps the manufacture to expand their business  Benefits from tax liability.  He is entitled to depreciation allowance.  Leasing activity have lower gestation period. To Lessee:  Reduces capital investment on property  Reduces the burden of payment of interest  Eliminates the risk of obsolescence  It provides for flexibility of time & finance.

To Lessor:  Involves high risk of obsolescence  Leasing activity locks up the available funds  The risk is borne by the lessor in case of dishonour by the lessee To Lessee:  It is costlier than rent payment  There is no transfer of ownership to the lessee  The lessee is not liable to receive depreciation

Lease comprises of 4 types :  Financial Lease  Operating Lease  Leveraged Lease  Sale & Lease Back

Financial Lease:  The leased asset is use specific  It is irrevocable in nature  The cost of insurance, maintenance, etc..is borne by the lessee  The risk of obsolescence is borne by the lessee Operating Lease:  The leased asset is for common use  It is revocable in nature  The cost of insurance, maintenance, etc.. Is borne by the lessor  The risk of obsolescence is borne by the lessor

The Act defines the hire purchase agreement as, “an agreement under which goods are let on hire and under which the hirer has an option to purchase them in accordance with the terms of the agreement.”

 HIRE PURCHASER: A person who obtains or has obtained possession of the goods from an owner under hire purchase agreement is known as hire purchaser or hirer.  HIRE VENDOR: A person who sells the goods on the basis of hire purchase agreement is called hire vendor.

 HIRE PURCHASE PRICE : Hire purchase price means the total sum payable by the hirer under a hire purchase agreement in order to complete the purchase of or acquisition of property in the goods to which the agreement relates. It includes any sum so payable by the hirer under the hirer under the hire purchase agreement by way of deposit or other initial payment.

LEASING  The ownership of the leased asset is not transferred  In the cases of lease, the lessee cannot show the leased asset in his books of accounts.  In case of leasing the lessee is not entitled to claim depreciation on the leased asset. HIRE PURCHASE  The ownership of the asset is transferred  The hire purchaser is entitled to show the asset in his books of accounts  The hire purchaser is entitled to claim depreciation on the asset for purposes of income-tax

 In case of leasing the cost of repairs and maintenance may be borne either by the lessor or by the lessee.  In case of leasing the risk of obsolescence may be borne either by the lessor or by the lessee.  In case of leasing a lease agreement may be either for a short or for a long-period.  In case of hire purchase the cost of repairs and maintenance is borne by the hire purchaser.  In case of hire purchase the risk of obsolescence may be borne either by the lessor or by the lessee.  A hire purchase agreement is, generally, for a short period.

 In case of leasing the agreement is non- cancellable.  In case of hire purchase the hire purchase agreement is cancellable