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Asset-Based Financing:
Lease, Hire Purchase and
Project Financing
Lease Defined
Lease is a contract under which a lessor, the owner
of the assets, gives right to use the asset to a lessee,
the user of the assets, for an agreed period of time
for a consideration called the lease rentals.
In up-fronted leases, more rentals are charged in the
initial years and less in the later years of the contract.
The opposite happens in back ended leases.
Primary lease provides for the recovery of the cost of
the assets and profit through lease rentals during a
period of about 4 or 5 years. It may be followed by a
perpetual, secondary lease on nominal lease rentals.
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Types of Leases
Operating Lease
Financing Lease
Sale and Lease Back
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Hirer can charge only interest Lessee can charge the entire
Portion. lease payments as expense for
tax computation.
Once the hirer has paid all Lessee does not become the
instalments, he becomes the owner of the asset. Therefore
owner of the asset and can he has no claim over the asset
claim its salvage value. salvage value.