ifs02 lease

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Advantages for Lessees1) Most leases do not require a

down payment, or a much smallerdown payment than a traditionalpurchasing down payment.2) Allows the lessee to "test out" theproperty before making anexpensive, long-term commitment.

3) Lessees get all the benefits ofthe property.4) Leasing provides an alternativeto ownership.5)Lessees benefit from taxadvantages. Firm that leases

equipment or real estate, forexample, will be able to deduct itslease payments from its taxableincome immediately rather thandeducting the cost of purchasingequipment as depreciation over

time.

Advantages for Lessors

1)A set amount of rental incomeaccording to the terms of thelease.

2) Lessors can make their moneyover and over again by renting

the property out to new lessees

3) Lessors own the property andcan take advantage ofappreciation over time either byraising the rent on it or by selling

it at a profit

4) Lessors are also betterpositioned to take advantage ofcertain tax laws, such asdepreciation allowances and

investment tax credits



Operating Lease

1)An operating lease is arental agreement. The lesseerecords rent expense foreach of the lease payments.2)Lessees do not commit topurchase the equipment inthe lease3)Lessee usually can cancelan operating lease, givensome minimum notification,without a major penalty4)The lessor is usuallyresponsible for maintenance,insurance, and taxes relatedto the asset.

Capital Lease/Financiallease1)Capital lease is a rentalagreement but thesubstance of the transactionis an asset purchase.

2)With capital leases, thelessee records as asset andrelated liability rather thanrental expense.

3)Lessee is responsible formaintaining and insuring the

asset and paying all propertytaxes4)Involves transfer ofownership to the lessee,who cannot cancel the leasewithout penalty.



.1) A capital lease increases the reported debt-to-equity ratio, a commonmeasure of an institution's leverage2) Working capital (current assets minus current liabilities) is reduced by thepresent value of lease payments in the coming year3) A capital lease also will affect an organization's income statement becauseinterest associated with the lease must be listed as an expense, as withproperty depreciation.4) However a capital lease does not necessarily mean that a lessee owns theequipment or can depreciate it for tax purposes.

Balance sheetAt the inception of a capital lease, the company leasing the equipment willrecord the equipment as an asset, and the company will also recognize a

liability on the balance sheet, by an amount equal to the present value of theminimum lease payments.The leased asset is depreciated in a manner consistent with the lessee's usualpolicy for depreciating its operational assets. It can be over the term of thelease (most common) or over the asset's useful life, if ownership transfers or abargain purchase option is present.



Income statement

A capital-lease payment includes two components: one is the interest expense- which is included in the income statement but is not part of operating income(earnings before taxes from continuing operations) - and the secondcomponent is the principal payment, which is included in the income statementand operating income. Total income over the life of the leased assets will be thesame for operating and capital leases

Cash flow statement

Total cash flow statements remain unaffected by operating and capital leases.

That said, cash flow from operations will include only the interest portion of thecapital-lease expense. The principal payment will be included as a cash outflowfrom cash flow from financing activities. As a result, capital leases will overstateCFO and understate CFF.

Operating Leases - Effects On

Balance sheet - No assets or liabilities are recorded.Income statement - The operating-lease payment will be treated as anoperating expense.Cash flow statement - Cash flow from operations will include the total leasepayment for the specified accounting period.



Consolidated Profit and Loss Account for the year ended 31stMarch, 2010 Jet Airways

Aircraft Lease rentals are shown as expenses

ifs02 lease

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