Beruflich Dokumente
Kultur Dokumente
INDIA
or
Non
Banking Finance
Financing
Arms
of
leading
Financial
Lease
193,914
Fig in Lacs
Operating
Lease
294,510
Important Features
The Lease finance is a contract.
The parties to contract are Lessor and Lessee.
Equipment (s) are brought by Lessor at the request of
Lessee.
The Lease - contract specifies the period of contract.
The Lessee uses these equipment.
The Lessee in consideration pays the lease rentals to the
Lessor.
The Lessor is the owner of the assets and is entitled to
the benefit of depreciation and other allied benefits
The Lessee claims the rentals as expenses chargeable to
his income.
This is also known by the name 'Capital lease'. The essential point of this type of
lease agreernent is that it contains a condition whereby the lessor agrees to
transfer the title for the asset at the end of the lease period at a nominal cost.
Under this lease usually 90 per cent of the fair value of the asset is recovered by
the lessor as lease rentals and the lease period is 75 per cent of the economic life
of the asset.
The lease agreement is irrevocable. Practically all the risks incidental to the asset
ownership and all the benefits arising therefrom is transferred to the lessee who
bears the cost of maintenance, insurance and repairs. Only the title deeds remain
with the lessor.
.
The lease can be cancelled by the lessee prior to its expiration at a short notice.
The lessor is responsible for up _Keep and maintenance of the asset.
The lease is for a smaller period.
The sum of all the lease payments by the lessee does not necessarily fully provide
for the recovery of cost of the asset.
The lessor has the option to lease out the asset again to another party.
Under
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v=6HNOBxZx87c
http://www.moneycontrol.com/stocks/marke
tinfo/totassets.php?indcode=51&optex=BSE
Effects
Particulars
Rs.
To Administrative and
9,00,000
other expenses
Particulars
Rs.
By Gross Profit
14,00,000
To Net Profit
5,00,000
14,00,000
14,00,000
Rs.
Particulars
Rs.
By Gross Profit
14,00,000
To Interest on Loans
(@ 18% on 4,00,000)
72,000
To Depreciation on
Machinery
80,000
(@ 20% on 4,00,000)
I
To Net Profit
I
I
3,48,000
14,00,000
14,00,000
Particulars
Rs.
Particulars
Rs.
9,00,000
By Gross Profit
14,00,000
To lease rent
1,20,000
To Net Profit
3,80,000
14,00,000
14,00,000
To Administrative and
other expenses
Rs.
7,00,000
3,00,000
10,00,000
Assets
Fixed assets
Current assets
Rs,
6,00,000
4,00,000
10,00,000
Rs.
7,00,000
4,00,00
3,00,000
14,00,000
Assets
Fixed assets
Current assets
Rs,
10,00,000
4,00,000
14,00,000
Rs.
7,00,000
3,00,000
10,00,000
Assets
Fixed assets
Current assets
Rs,
6,00,000
4,00,000
10,00,000
The Tax effects that arise from the lease transaction is studied from Lessee and Lessor
point of view is given below:
From the View Point of Lessee: The full amount of the 'annual lease payment is a
deductible expense for computing taxable income.
From the View Point of lessor: The Lessor is entitled to claim the depreciation
allowance and the lease rentals will be taken into consideration in computation of
taxable income.
In the Leasing situation, the lessor claims whatever capital allowances are available
and may pass on some of the benefits via lower leasing charges to the lessee. The
amount, if any, which is passed on will depend upon competition within the market and
also on how close the lease is to the lessor's year end. A potential, lessee should
ideally seek a lessor just before the lessor's year-end. If the lessor buys an asset just
before a year-end, then the benefit of the tax allowance is received at the earliest
possible opportunity, which will be an inducement to the lessor to arrange the deal.
It
It
spreads capital cost over a reasonable period and sufficiently flexible as the
lease rentals can be structured according to the needs of the lessee
(borrower).
Lease
Ownership of the Asset:In lease, ownership lies with the lessor. The lessee has the right to
use the equipment and does not have an option to purchase. Whereas in hire purchase, the
hirer has the option to purchase. The hirer becomes the owner of the asset/equipment
immediately after the last installment is paid.
Depreciation:In lease financing, the depreciation is claimed as an expense in the books of
lessor. On the other hand, the depreciation claim is allowed to the hirer in case of hire
purchase transaction.
Rental Payments:The lease rentals cover the cost of using an asset. Normally, it is derived
with the cost of an asset over the asset life. In case of hire purchase, installment is inclusive of
the principal amount and the interest for the time period the asset is utilized.
Duration:Generally lease agreements are done for longer duration and for bigger assets like
land, property etc. Hire Purchase agreements are done mostly for shorter duration and
cheaper assets like hiring a car, machinery etc.
Tax Impact:In lease agreement, the total lease rentals are shown as expenditure by the
lessee. In hire purchase, the hirer claims the depreciation of asset as an expense.
Repairs and Maintenance:Repairs and maintenance of the asset in financial lease is the
responsibility of the lessee but in operating lease, it is the responsibility of the lessor. In hire
purchase, the responsibility lies with the hirer.
Extent of Finance:Lease financing can be called the complete financing option in which no
down payments are required but in case of hire purchase, the normally 20 to 25 % margin
money is required to be paid upfront by the hirer. Therefore, we call it a partial finance like
loans etc.