Difference between Hire Purchase and Leasing:
Characteristics
Ownership:
Leasing: With the finance company, the lessor
Hire purchasing: It is transferred to the hirer on the payment of the last installment
Depreciation:
Leasing: Lessor, and not the lessee is entitled to claim depreciation tax shield
Hire purchasing: The hirer is entitled to claim depreciation tax shield
Capitalization
Leasing: Done in the books of lessor
Hire purchasing: Done in the books of hirer
Payments
Leasing: The entire lease payments are eligible for tax computation in the books of lessee
Hire purchasing: Only the hire interest is eligible for tax computation in the books of hirer
Magnitude
Leasing: Used as a source of finance, usually for acquiring high cost assets such as machinery, ships etc
Hire purchasing: Used as a source of finance, usually for acquiring low cost assets such as automobiles, office equipments etc
Maintenance of asset
Leasing: Lessee in case of financial, Upkeep is the responsibility of the lessor in the case of operating lease
Hire purchasing: It is the hirer‘s responsibility to ensure the maintenance of the asset bought
Nature of asset
Leasing: Asset- as a fixed asset of the lessor
Hire purchasing: Shows the asset either as a stock in trade or as receivables
Down payment
Leasing: No down payment required
Hire purchasing: It is required
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