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The Leasing

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Definition of lease;Kinds of lease:1. Operating lease;2. Financial lease; The subject of the financial lease; Advantages and disadvantages of

leasing; Fee; Risks and benefits; Lease in business economics; In law; The contract : Characteristics.

Topics:

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Definition of a lease

A lease is a contractual agreement between the lesser (owner) and the lessee (second party) for a specified asset, which can be property, a house or apartment, business or office equipment, a car or even a horse. The lessee receives the right to total ownership for a spelled out period of time and conditions in return for payments.

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Be careful ….

Do not confuse a lease with a rental, although these words are often interchanged. A rental is for a short period of time, such as a month, where, in this case, the agreement is renewed or the terms are monthly changed.

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Kinds of lease

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The lease can be of two kinds:

2. Operat

ing lease

1. Financ

ial lease

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1. Operating lease

An operating lease is the first lease that appeared on the market. This formula is essentially goods with a high level of standardization, it can be - for example - computers, copiers. Differently from what happens in the case of finance leases, operating leases are entered into a bilateral relationship with the manufacturer of the goods. In this case, therefore, manufacturer and lesser coincide, therefore, it can be stated that:

• the redemption price is not always convenient as in the case of financial leasing (considering the high standardization and usability of the product on the market);

• the duration of the contract is significantly lower than a finance lease.

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2. Financial lease It is one of the versions of the most traditional and

complete leasing and is probably the most used. It is defined "financial", because in this case the service is very close to a finalized funding operations concerning goods with a high degree of specialization. On expiry of the contract with the leasing company, the subscriber can decide whether to redeem the property or return it to the company. In this case, of course, the duration of the contract is closely linked to the nature of the leased asset and its productive life (typically from 3 to 5 years for movable property and from 25 to i30 for those properties) .

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The subjects of the financial leaseIn the financial lease there are three subjects: The manufacturer of capital goods;  The leasing company (lesser) who buys the

goods from the manufacturer and leases it to you;

 The user of the asset (conductor or lessee) that is required to pay the license fees, with the option to purchase the asset at the agreed price (redemption price).

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Financial leases can be also of two types:

1. Finance leases fixed rate;2. Finance leases variable

rate

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1. Finance lease at fix rate….Remains fixed for the duration of the lease are the interest rate and the amount of each payment. The disadvantage is of not take advantage of any reduction in market interest rates. The fixed rate is recommended for those who want to be sure, from the moment of signing the contract, the measure of the rate, the amount of each payment and the total amount of debt to be repaid, regardless of changes in the market conditions.

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2. Finance at variable rate….Compared to the initial rate, the interest rate may vary, with cadences established, according to the course of one or more parameters of indexing set out in the contract. The main risk is unpredictable and substantial increase of the amount of the installments. The variable rate is recommended for those who want a rate more in line with the market trend and can support any increase in the amount of the installments.

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Graphic… for understanding better:

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MANUFACTURER

GOODSINSTRUMENT

AL

UNDERTAKING

user

Takes the leased assets

financial, pay itsfees and shall

bear allrisks and benefits

AUDITORS '

LEASING

1 2

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Advantages of leasing

Acquisition of long-term assets requires enormous outlay of money, which is sometimes far beyond the financial capacity of the real user. In such a situation, the user can ask for capital goods. Leasing serves as a long-term loan that can be used for the acquisition of capital. The advantages of leasing are as follows:

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1. Leasing Permits Alternative UsesA leasing arrangement provides a firm with the use

and control over the assets without incurring huge capital expenditure and requiring to make only periodical rental payments. Thus, leasing saves funds for alternative uses.

2. Leasing Arrange Faster And Cheaper CreditLeasing companies are generally more

accommodating than banks and other financial institutes in respect of terms of financing. It has generally been found that acquisition of assets under leasing arrangement is cheaper and faster compared to the acquisition of assets through other sources of financing.

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3. Leasing Increases Lessee's Capacity To BorrowLeasing arrangements enable the lessee to use more of

its own funds for working capital purposes instead of using low yielding fixed assets. The debt-equity ratio of lease does not alter because of assets acquired under lease arrangements. As such lease arrangements can resort to further borrowings in case the need arises.

4. Leasing Protects against ObsolescenceLease arrangements helps to protect the lessee against

the risk of obsolescence in respect of the assets which become obsolete at a faster pace.

5. Boon For Small FirmAcquisition of assets through a leasing arrangement is

particularly beneficial to small firms which can not afford to raise their capacity on account of scarcity of financial resources.

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6. Absence Of Restrictive ConvenienceThe financial institution while lending money usually attach

several restrictions on the borrowers as regards management, debt-equity norms declaration of dividends etc. Such restrictions are absent in the case of lease financing.

7 Trading On Tax ShieldIn case of a non-tax paying lessee, the cost of financing an

asset is much higher as compared to a tax-paying lessee. However, when tax-paying owns the assets, he generally passes a part of the tax benefit to the lessee by means of lower rental charge. As a result of this favor, the real cost of the asset to the lessee, works out to be lower than these it would have been if he were the owner of the assets.

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Disadvantages of leasing

Major disadvantages of leasing are as follows:1. Deprived On OwnershipIn a leasing arrangement, the lessee does not get

the ownership of the asset. it gives only the right to use. As such, the lessee, cannot pledge the asset for securing loan from financial institutions.

2. Deprived Of The Asset IN Case Of DefaultIn case the lessee makes a default in rental

payment, the lesser is entitled to take over the asset and the lessee has no right to prevent him from doing so.

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what is this fee?For the duration of the contract, to use the good, the customer must pay

a fee - determined during the negotiation phase - to the leasing company.

This fee, which can be monthly, bimonthly or quarterly, has some special features:

is tax deductible. It is this characteristic to make leasing very attractive compared to other financing transactions, especially for those who generate profits with a significant value.

is the consideration for a service (leasing) and therefore expressed over the cost of the operation in terms of the rate applied, all of the services identified as "added value" of the leasing company. In light of this definition, it seems improper to judge the value of a transaction only in terms of the post of the royalties, apart from its contractual characteristics, as well as operational efficiency of the Company grantor.

The initial fee (the "advance") is usually expressed as a percentage. The advance may also be equal to the charges later. In this case, it is called "Leasing fees constants".

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Risks……check out this site to learn more about

risks:http://www.cherielliott.com/Lease_Option.shtml

Benefits:

check out this site to learn more about risks:http://www.fla.org.uk/business/benefits-of-leasing

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Lease in business economic

The assets acquired under finance lease are not legally part of its heritage as it's own gift, and therefore do not appear as assets of the balance sheet.

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Building 100 000 Fund Admin. manufactured

5000

Equipment 20000 Fund Admin. Equipment 10000

Goods payables 40000 Suppliers 25000

Receivable from customers

80000 Shareholders’ equity 150000

Total 190000 Total 190000

Balance Sheet

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Conclusion of the contractAt the conclusion of the contract, the company must

be held between the memorandum accounts, the commitment to the lease payments to be paid the sum of all due fees. So in the accounts we have:

Date accounts / description Give Have

15/06 commitments for property leasing 60000

creditors c / leasing 60000

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Nature of the accounts

The loans account for leased assets is taken in to use the account instead Creditors c / lease is in having the subject in respect of which the application was taken. Lease payments are subject to the same tax rate.

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Continue…Date Accounts/ description Give Have

15/09 Leasing fee 3000

Iva. Ns. Credit 600

Payables / suppliers 3600

15/09 Payables / suppliers 3600

Bank X c/c 3600

15/09 creditors c / leasing 3000

Commitments for property leasing 3000

The account Leasing is a loss of income and access to operating costs is put in to the economic outturn account. The fees shall be paid in advance with respect to the frequency indicated in the contract.

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Lease in law

http://law.yourdictionary.com/lease

{You can visit this web site too: leasing\Tiscali Finanza.htm}

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Glossary Lease = leasing; Operating lease = leasing operativo; Financial lease = leasing finanziario; The subject of the financial lease= soggetti del contratto di

leasing; Advantages and disadvantages of leasing= vantaggi e

disvantaggi del leasing; Fee= canone; Risks and benefits= rischi e benefici di un leasing; Lease in business economics= leasing in economia aziendale; Lease in mathematic= leasing in matematica; In law= in diritto; The contract : Characteristics= caratteristiche del contratto.

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