Debt can be useful if the company utilize it to earn more money in excess of the cost of borrowing the funds.…
“Buying vs. Leasing” (2014) says that advantages of leasing products and equipment include fewer starting expenses. The main object that is attractive to those in the leasing areas of operation is that it can help you obtain an asset with lower starting expenditures. This is evident is because the leases for equipment usually do not require any sort of a down payment and this helps the lessee get the goods without depleting the levels of the cash flow that are currently established (“Buying vs. Leasing”, 2014). Lease payments on a monthly basis are typically less than a traditional principal and interest payment. Leases are normally easier to acquire due to the fact that terms can be changed and are more attractive rather than long term loans for financing. Leasing may be a solution if you don’t have the greatest credit or have cash flow issues and need a lower payment or no down payment. If you are utilizing the lease to gain products that could be antiquated in a short period, like technology equipment such as computers, the lease will then pass on the weight of obsolescence to the lessor. Once the term agreement for a previous lease expires then a lessee will be able to upgrade at any time.…
A. Firms with lower effective tax rates were found to have a higher proportion of leased debt to total assets than did firms with higher effective tax rates. Some lease agreements are in-substance long-term installment purchases of assets that have been structured to gain tax or other benefits to the parties. Since leases may take different forms, it is necessary to examine the underlying nature of the original transaction to determine the appropriate method of accounting for these agreements. That is, they should be reported in a manner that describes the intent of the lessor and lessee rather than the form of the agreement.…
I . Determining whether to buy or rent can be difficult. I believe the monetary advantages, personal advantages, and community advantages makes buying superior to renting.…
Leases are usually easier to obtain and have more flexible terms than loans for buying equipment. This can be a significant advantage if you have bad credit or need to negotiate a longer payment plan to lower your costs. ("Buying vs. Leasing", 2014).…
According to FASB ASC 840-30-05-4 (2009), lease capitalization includes direct financing and sales-type leases. These types of leases are recognizable by meeting one of the four criteria’s. A lessee under the capital lease method recognizes the lease according to FASB ASC 840-30-25-1 (2009), as an asset and as a commitment. The lessee accounts for the lease commitment in accordance to FASB ASC 840-30-30-1 (2009), at inception when the amount is equal to the present value (PV). In addition, the lease term will exclude the payment portion that represents specific cost such as insurance, maintenance, and taxes. For capital leases, a lessee recognizes lease assets and liabilities on the balance sheet (FASB, 2013).…
The economic effect of such a lease on the lessee is similar, in many respects, to that of an installment purchase.…
Debit financing is a means of raising funds to generate working capital used to pay for projects or endeavors that the issuer of the debt wishes to undertake (“WiseGeek,” 2013). Debt financing is a form of borrowing money to keep a business operating. Debit financing is the act of selling bonds, notes, or mortgages held by the organization. These items are sold and the cash generated can be used purchase larger asset such as buildings. Debit financing usually does not include options of ownership of the organization.…
While equity financing is an option that is often ideal for funding new projects, there are situations where looking into debt financing is in the best interests of the company. Should the project be anticipated to yield a return in a very short period of time, the company may find that obtaining loans at competitive interest rates is a better choice. This is especially true if this option makes it…
2. An alternative to traditional equity and debt financing is leasing. Leasing is undertaken primarily for what purposes?…
Additionally two other types of leases exist; these are known as sales type leases and direct financing leases. In order to be classified as a sales type lease or a direct financing lease the at least one of the four criteria of a capital lease must be met as well as the collectability of the minimum lease payments must be reasonably predictable and no important uncertainties surround the amount of non-reimbursable costs that have not been incurred by the lessor under the lease (Schroeder, Clark, & Cathey, 2011). A sales type lease must also have manufacturers or dealer’s profit or loss, whereas a direct financing lease will not have a manufacturer’s or dealer’s profit or loss (Schroeder, Clark & Cathey,…
The ED wants all leases to be recognised as right-of-use assets and lease liabilities, except short-term leases. AASB 117 only requires finance leases to be recognised on statements. This essay will focus on lessees and recognising operating leases on financial statements as the ED affects them the most.…
What are the pros and cons of each of the three financing alternatives given in the case?…
2. The lease contains an option to purchase the asset at a bargain price (i.e., less than the…
Capital Lease : Long-term, non-cancellable lease contracts are known as financial leases. The essential point of financial lease agreement is that it contains a condition whereby the lessor agrees to transfer the title for the asset at the end of the lease period at a nominal cost. At lease it must give an option to the lessee to purchase the asset he has used at the expiry of the lease. Under this lease the lessor recovers 90% of the fair value of the asset as lease rentals and the lease period is 75% of the economic life of the asset. The lease agreement is irrevocable. Practically all the risks incidental to the asset ownership and all the benefits arising there from are transferred to the lessee who bears the cost of maintenance, insurance and repairs. Only title deeds remain with the lessor. Financial lease is also known as 'capital lease'. In India, financial leases are very popular with high-cost and high technology equipment.…