Leasing
Chapter Number Chapter 17
Subject COF
📖 Table of Contents
Outline
17.2 Leasing
TYPES OF LEASES
Operating Leases
Financial (or Capital) Leases
LEASING ARRANGEMENTS
LEASE-VERSUS-PURCHASE DECISION
EFFECTS OF LEASING ON FUTURE FINANCING
ADVANTAGES AND DISADVANTAGES OF LEASING
17.2 Leasing
Leasing 1
, 📍 Leasing enables the firm to obtain the use of certain fixed assets for which
it must make a series of contractual, periodic, tax-deductible payments.
The lessee is the receiver of the services of the assets under the lease
contract, and the lessor is the owner of the assets.
TYPES OF LEASES
Operating Leases
A cancelable contractual arrangement whereby the lessee agrees to make periodic
payments to the lessor, often for 5 or fewer years, to obtain an asset’s services
generally, the total payments over the term of the lease are less than the lessor’s
initial cost of the leased asset.
Assets that are leased under operating leases have a usable life that is longer than
the term of the lease.
Financial (or Capital) Leases
A longer-term lease than an operating lease that is non-cancelable and obligates the
lessee to make payments for the use of an asset over a predefined period of time
the total payments over the term of the lease are greater than the lessor’s initial cost
of the leased asset.
a financial (or capital) lease is defined as one that has any of the following elements:
1. The lease transfers ownership of the property to the lessee by the end of the lease
term.
2. The lease contains an option to purchase the property at a “bargain price.”
3. The lease term is equal to 75% or more of the estimated economic life of the
property (exceptions exist for property leased toward the end of its usable
economic life).
4. At the beginning of the lease, the present value of the lease payments is equal to
90% or more of the fair market value of the leased property.
LEASING ARRANGEMENTS
Leasing 2
Chapter Number Chapter 17
Subject COF
📖 Table of Contents
Outline
17.2 Leasing
TYPES OF LEASES
Operating Leases
Financial (or Capital) Leases
LEASING ARRANGEMENTS
LEASE-VERSUS-PURCHASE DECISION
EFFECTS OF LEASING ON FUTURE FINANCING
ADVANTAGES AND DISADVANTAGES OF LEASING
17.2 Leasing
Leasing 1
, 📍 Leasing enables the firm to obtain the use of certain fixed assets for which
it must make a series of contractual, periodic, tax-deductible payments.
The lessee is the receiver of the services of the assets under the lease
contract, and the lessor is the owner of the assets.
TYPES OF LEASES
Operating Leases
A cancelable contractual arrangement whereby the lessee agrees to make periodic
payments to the lessor, often for 5 or fewer years, to obtain an asset’s services
generally, the total payments over the term of the lease are less than the lessor’s
initial cost of the leased asset.
Assets that are leased under operating leases have a usable life that is longer than
the term of the lease.
Financial (or Capital) Leases
A longer-term lease than an operating lease that is non-cancelable and obligates the
lessee to make payments for the use of an asset over a predefined period of time
the total payments over the term of the lease are greater than the lessor’s initial cost
of the leased asset.
a financial (or capital) lease is defined as one that has any of the following elements:
1. The lease transfers ownership of the property to the lessee by the end of the lease
term.
2. The lease contains an option to purchase the property at a “bargain price.”
3. The lease term is equal to 75% or more of the estimated economic life of the
property (exceptions exist for property leased toward the end of its usable
economic life).
4. At the beginning of the lease, the present value of the lease payments is equal to
90% or more of the fair market value of the leased property.
LEASING ARRANGEMENTS
Leasing 2
