Short Answers: Leasing

1.  Define Leasing.

A lease may be defined as a contractual arrangement/transaction in which a party owning an asset/equipment (lessor) provides the asset for use to another/transfer the right to use the equipment to the user (lessee) over a certain/for an agreed period of time for consideration in form of/in return for periodic payment (rentals) with or without a further payment (premium).

2.     Write the elements of leasing.

^Ø Parties to the contract

^Ø   Asset

^Ø   Ownership Separated from user

^Ø   Term of lease

^Ø   Lease Rentals

^Ø   Modes of terminating lease

2.     Define Angel Finance.

Angel investors are private investors, typically wealthy individuals who provide financial support in return for an equity stake. Angel investors have personal interest in the venture and offer advice, and support to promoters for achieving success.

4.    Write the entities of Direct Lease.

In direct lease, the lessee and the owner of the equipment are two different entities. A direct

lease can be of two types:

^Ø   Bipartite and

^Ø   Tripartite Lease.

4.     Mention the six players of leasing.

o Independent Leasing Companies o Other finance companies

o  Manufacturer-Lessor

o  Financial Institutions

o  In-house Lessor

o   Commercial Banks

5.     Write any four advantages of lease financing.

The advantages of leasing are as follows:

^Ø To the Lessee:

Lease financing has following advantages to the lessee:

^Ø   Financing of Capital Goods

^Ø   Additional Source of Finance

^Ø   Less Costly

^Ø   Obsolescence Risk is Averted

^Ø   To the Lessor:

A lessor has the following advantages:

^Ø Full Security

^Ø   Tax Benefit

^Ø   High Profitability

6.     Write any four advantages of lease financing.

The advantages of leasing are as follows:

To the Lessee:

Lease financing has following advantages to the lessee:

^Ø   Financing of Capital Goods

^Ø   Additional Source of Finance

^Ø   Less Costly

^Ø   Obsolescence Risk is Averted To the Lessor:

A lessor has the following advantages:

^Ø   Full Security

^Ø   Tax Benefit

^Ø   High Profitability

Trading on Equity

7.  List out the types of leasing.

Leasing can be classified into the following types:

^Ø   Finance lease and Operating Lease,

^Ø   Sales and lease back and Direct lease,

^Ø   Single investor lease and Leveraged lease and

^Ø   Domestic lease and International lease.

8.     Give the meaning of hire purchasing.

Hire-purchase is a mode of financing the price of the goods to be sold on a future date. In a hire -purchase to be transaction, the goods are let on hire, the purchase price is option to paid in installments and the hirer is allowed an purchase the goods by paying all the installments.

9.     Write any two characteristics of hire purchase.

^Ø   Payment to be made in installments over a specified period.

^Ø   The possession is delivered to the hirer at the time of entering into the contract.   

10.            Define Contract of Sales of Goods.

A contract of sales of goods is a contract whereby the seller transfers or agrees to transfer

the property in goods to the buyer‟and foran „agreempric to sell‟which vastly differ from each other.

1.     Difference between Leasing and Hire purchase financing. 

These two modes of financing differ in the following respects: 

o Ownership

o  Depreciation

o  Magnitude

o  Extent

o  Maintenance

o   Tax Benefits

2.     What are all the income tax considerations for the lessees? 

The income tax considerations for the lessees are o Allow ability of lessee rentals

o Deduction of Incidental Expenses and o Tax Planning

o Flexible structuring of lease rentals 

o Transfer of unabsorbed capital allowance to the lessor.

3.     What are the limitations of lease financing? 

Lease financing suffers from certain limitations too: o Restrictions on Use of Equipment

o Limitations of Financial Lease o Loss of Residual Value

o  Consequences of Default

o  Understatement of Lessee‟s Asset

o   Double Sales -Tax.

4.     What are the types of leasing? 

Leasing can be classified into the following types: o Finance lease and Operating Lease,

o  Sales and lease back and Direct lease,

o Single investor lease and Leveraged lease and o Domestic lease and International lease.

5.     What are the advantages of leasing? 

The advantages of leasing are as follows: 

To the Lessee: 

Lease financing has following advantages to the lessee:

Ø   Financing of Capital Goods

Ø   Additional Source of Finance

Ø   Less Costly

Ø   Ownership Preserved

Ø   Avoids   Conditionality‘s

Ø   Flexibility in Structuring of Rentals

Ø   Simplicity

Ø   Tax Benefits

Ø   Obsolescence Risk is Averted

To the Lessor:

A lessor has the following advantages:

Ø   Full Security

Ø   Tax Benefit

Ø   High Profitability

Ø   Trading on Equity

Ø   High Growth Potential