LEASES

Lease is a contractual agreement in which the assets owners (Lessor) agrees to let another party (lessees) use that assets in accordance with the term of a contract. Leasing is considered a sources of financing providing by the lessor to the lessee The growth in leasing is attributable largely to tax effect in which tax shelters may be transferred from the user of the assets to the suppliers of the capital in such a way that both the lessor and lessee benefit.

TYPES OF LEASES
OPERATING LEASE

An operating lease sometimes called a service or maintenance lease is a short-term cancelable agreement that provides the lease with use of an assets on a period by period
The life of the contract is significantly shorter that the economic life of the assets.

Operating leases are used to gain the uses of a variety of assets such as offices equipment , computer and automobiles.

CAPITAL LEASE
A capital or financial assets is a long term agreement that obligation the lessor to make payments for a predetermined time period. Leases cover most of economics life of the assets are non cancelable provides no maintenance services except under a separate agreement and fully amortized the cost of the leased property. Financial lease often involve real estate airplane , ship railroad, cars and specialized equipment.

DIRECT LEASE :
Direct lese is generally involves new equipment acquired from a manufacturing or specialized leasing company by lessor.

SALES AND LEASE BACK:

A sales and leaseback is an arrangement in which a firm sells an assets it already own to another party and than immediately lease it back form the buyer . The leaser receive the cash from the sale of the asset and continues using the assets ..

ADVANTAGES
FLEXIBILITY

Operating leases offer flexibility because they can be cancelled.

FINANCING :
Leasing provides an additional source of financing for facilities and equipment to firms that have limited capital budget.
LIQUIDITY: Leasing may increase liquidity and conserve the availability of cash for other purpose.

CONVENIENCE:
Leasing is a convenient way to obtain the use of assets that are needed only temporarily. SHIFTING THE RISK OF ABSOLESCENCE ; Leasing may may allows the lessor to avoid assuming the risk of obsolescence. TAX CONSIDERAION

Leasing may provides tax advantages relative to borrowing to buy .

DISADVANTAGES
COST : LACKE OF SALVGE VALUE

DIFFICULTY OF PROPERTY IMRPVEMENT NON CANCELABILITY