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    Acc introduction

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    Christian
    Introduction

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    Acc introduction

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    Christian
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    Introduction

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    © © All Rights Reserved

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    Introduction

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    2 views3 pages

    Acc introduction

    Uploaded by

    Christian
    Introduction

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
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    INTRODUCTION

    Nowadays, if you want to use an asset, you don’t need to purchase it


    from the seller. There are many offers whereby, you can use the asset
    just by paying the price for using it, such as Hire Purchasing and
    Leasing. The former is a business deal in which the purchaser of the
    asset, pays a small amount at the beginning and the rest of the price
    in installments. On the contrary, the latter is an agreement between
    two parties in which the lessor purchases the asset and permits the
    lessee, use the asset for the payment of monthly rentals. Both Hire-
    Purchase and Lease are the commercial arrangement, whereby the
    asset does not require the customer to own the asset for using it, but
    they are not one and the same. The fundamental differences and
    similarities between Hire-Purchaing and Leasing are discussed in this
    work.
    Classification of Lease

    According to AS-19 the lease may be of two types:

     Operating Lease
     Financial Lease

    Operating Lease: A lease is classified as an operating lease if the


    lessor does not transfer all risks and rewards incidental to ownership
    of the asset. The lessee acquires rights to use the assets on a period
    to period basis. In other words, operating lease covers the period
    which is much shorter than the economic life of the asset. The lessor
    may lease the asset to different lessees one after another throughout
    its useful life. The rent payable by any one lessee during the lease
    period is not sufficient to cover cost of the asset fully. At the expiry of
    term of lease, the asset reverts back to the lessor. Hence, such leases
    are called short term leases. An operating lease is also termed as
    „Service Lease‟ because lessor also provides necessary services
    relating to insurance, repairs and maintenance of the leased asset.
    Therefore, the lease rentals of an operating lease also include for
    such services in respect of leased asset.The operating lease is
    generally cancelled by either party. Because of provisions of services
    along with the risk of obsolescence, the operating lease is more
    expensive as compared to other form of lease as the lessee has to
    compensate to the lessor for both- the instant services and the risk of
    obsolescence.

    Finance Lease: According to AS-19, a finance lease is a lease that


    transfers substantially all the risks and wards incidental to ownership
    of an asset. It usually covers the full useful life of the asset or a period
    which is closer to its economic life. Such lease are termed as long-
    term or non cancellable lease contract during which the lessor
    receives rental that covers not only the cost of the asset but a
    reasonable return on the funds invested to acquire the asset. The
    repairs and maintenance of the leased asset is undertaken by the
    lessee. Hence, such leases are also known as capital or full pay out
    leases. At the end of lease term, the asset may be returned to owner
    (lessor) or handled as per lease terms.
    Advantages of lease Form of business financing

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