Professional Documents
Culture Documents
Hire purchase
Buyer takes possession and agrees to pay in installments. Each installment is hire charges. Ownership passes on the payment of installment. In case of default , seller can repossess. Hirer can terminate the agreement & then he need not pay installment
Leasing
lease is a contract whereby the owner of an asset grants to another party the right to use the asset usually for an agreed period of time in return for the payment of rent-James Horne. STEPS INVOLVED IN LEASING
Lessee has to decide the asset and supplier,price,servicing etc. Lessee & lessor enter into agreement with terms & condition.(lease period, timing & amount, repairs etc.)
TYPES OF LEASE
FINANCIAL LEASE
IRREVOCABLE AGREEMENT LESSEE USES THE EQUIPMENT,MAINTAINS IT BEARS RISK OF OBSOLESCENCE. COULD BE WITH PURCHASE OPTION
OPERATING LEASE
CONTRACT IS FOR LESS THAN LIFE OF AN ASSET. LESSOR BEARS RISK OF OBSOLESCENCE, MAINTAINANCE,PAY TAX
Financial lease Financial function Commitment to pay for the entire cost of equipment.
Operating lease Service function Does not pay more than the cost of equipment.
Lessee pays maintenance & taxes Risk of obsolescence is assumed by lessee Period ranges from medium to long Non cancellable contract Aircraft land & building
Maintenance expense & tax by the lesor Leasing company Short term Cancellable by lessor or lessee Computer office equipment
Advantages
Alternative use of fund Fast & cheap credit Flexibility( acc to lessee) Facilitate additional borrowing 100% financing Boon to small firm Protects against obsolescence( lessee in operating lease)
Disadvantages
Not suitable for project having long gestation period Lessee loses the advantage of increase price of land & building. Cost of financing is higher A lessee cant terminate the contract even if wants to discontinue then product line. If lessee doesnt pay rentals then loss for lessor
PROBLEMS
Unhealthy competition- over supply of lessors Lack of qualified professional Tax-relief for lessee but becomes lessors burden, all taxes involved. Stamp duty Delayed payment of rent & bad debt adds to the cost.