lease & hp

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8/8/2019 lease & hp


Hire purchase

y Hire Purchase is an agreement to hire an asset over apredefined period with an option to purchase as theend of the agreement.

y With a hire purchase agreement, after all the paymentshave been made, the business customer becomes theowner of the equipment. This ownership transfer

either automatically or on payment of an option topurchase fee

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y Many kinds of business asset are suitable for financing

using hire purchase or leasing, including:

- Plant and machinery - Business cars

- Commercial vehicles- Agricultural equipment..- Hotel equipment- Medical and dental equipment

- Computers, including software packages-Office equipment

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y Advantages of Hire

Purchasingy Cash flow: payment by

instalments.

y Writing down allowancesapply.

y Hire purchase is analternative funding line tobank overdrafts

y Attracts fixed rate interest.

y

Others same as OutrightPurchase.

Disadvantage of hirepurchasing

y Inflexible: difficult toescape the outstandingsettlement if say, a vehicleis no longer required.

y

High deposit compared tocontract hire.

y Business hire purchaseappears as a debt on thebalance sheet which could

inhibit future borrowing.y More expensive than

contract hire

y Burden of controlling andrunning fleet

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LEASING

INTRODUCTION

y Leasing, as a financing concept, is an arrangementbetween two parties, the leasing company or lessor

and the user or lessee, whereby the former arranges tobuy capital equipment for the use of the latter for anagreed period of time in return for the payment of rent.

y The rentals are predetermined & payable at a fixedinterval of time, according to conveniences of theparties.

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DEFIN ATION

DICTION ARY OF BUSINESS A ND M A N AGEMENT

lease is a form of contract transferring the use oroccupancy of land, space, structure, in consideration

of a payment, usually in the form of a rent JA MES C. VA N HOR NE

lease is a contract whereby the owner of an assetgrants to another party the exclusive right to use theasset usually for an agreed period of time for thepayment of rent

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There are a variety of types of

leasing arrangement:

y Finance Leasing

y Operating Leasing

y Sale and Lease Back

y Leveraged Lease

y Direct Lease

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Difference between HP& LEASING

y ownership in a contract of lease ,the owner ship rests with the lesser throughout & the lessee ( hirer ) hasno option to purchase the goods .

y Method of financing leasing is a method of

financing business assets whereas hire purchase is amethod of financing both business assets &consumer articles .

y Depreciation in leasing, depreciation & investmentallowance can not be claimed by the lessess, in hire

purchase, deprecation & investment allowance canbe claimed by the hirer.

y Tax benefit the entire lease rental is tax deductibleexpenses .only the interest component of hire

purchase installments is tax deductible

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y Salvage value the lessee, not being the owner of theasset , does not enjoy the salvage value of the asset.The hirer, in purchase, being the owner of the asset,enjoys salvage value of the asset

y Deposit lessee is not required to make any deposit whereas 10% deposit is required in hire purchase

y Maintenance the cost of maintenance of the hiredasset is to be borne by the hirer himself. in case of

finance lease only, the maintenance of leased assets isthe responsibility of the lessee.

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lease & hp

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