MECHANICS OF LEASING

Three aspects of leasing

Legal aspects of leasing Procedural Aspects of leasing Accounting aspects of leasing

Legal aspects of leasing

Obligations of lessor Possession of asset and authority to use to lessee Obligations of lessee For the payment of lease rental Take the responsibility of the leased asset Return the leased asset to the lessor after the expiry of the lease period

Contents of lease agreement

Description of the asset, lessor and the lessee Place and time of the delivery of asset Time and amount of lease rental payment The responsibility of lessee for taking the possession and delivery of the asset The right of the lessee to have the benefit of assets

The responsibility of lessee for registration, repair and maintenance of the asset The responsibility of lessee to take the insurance on the lessor's behalf The responsibility of lessee to return the asset on the lease period's expiry The lease renewal option for the lessee

Procedural Aspects

The lessee enjoys the right to select the asset The lessee negotiates over the lease term The lessee has to approach the leasing company and submit the application for the asset The lessor and lessee have to sign the agreement of lease

Accounting treatment of leases

The operating leases are added in the books of lessor as advantage and the payment that is earned on the lease is considered to be the expense of lessee and income of the lessor. The finance leases, on the other hand, are capitalized in the lessee's books.

Leasing as financial decision making

Procedure Of Leasing Financial Decision

Identify limiting factors cost time Develop alternatives for action bank loan issue securities Analysis of alternatives

Selection of best alternative acquisition Experience Experiment Research and analysis Implementing the solution Assessment decision