Research Paper: Accounting for Lease

UNIVERSITY OF NAIROBI
SCHOOL OF BUSINESS
MASTER OF BUSINESS ADMINISTRATION

ADVANCED FINANCIAL ACCOUNTING
DAC 601

TOPIC: ACCOUNTING FOR LEASES

PRESENTED BY:
Mbogo Stella Mumbi……………...……...…………….D61/60246/2013
Albert Kalute Maingi……………...……...…………….D61/62221/2013

PRESENTED TO: DR. KAMASARA

TABLE OF CONTENTS:

1.0: INTRODUCTION……………………………………………………………………….. 3 1.1: Leasing………………………………………………………………………………….. 3 1.2: Definition of Terms…………………………………………………………………….. 3 1.3 Lease Classification………………………………………………………………………5

2.0: HISTORICAL BACKGROUND………………………………………………………… 8

3.0: LITERATURE REVIEW…………………………………………………………...….…. 11

3.1: THEORITICAL EVIDENCE……………………………………………………………11
3.1.1: Accounting Treatment………………………………………………………….....11
3.1.2: Tax Savings………………………………………………………………………..11
3.1.3: Borrowing Capacity…………………………………………………………….....12
3.1.4: Repayment………………………………………..……………………………….12
3.1.5: Risk Sharing……………………………………………………………………….12 3.2: EMPIRICAL EVIDENCE…………………………………………………….………... 13
3.2.1: Survey Evidence…………………………………………………………………..13
3.2.2: Indirect Evidence………………………………………………………………….14
3.2.3: Leasing In Kenya………………………………………………………………….16

4.0: ACCOUNTING TREATMENT……………………………………………………………17

5.0: UNRESOLVED ISSUES…….…………………………………………….………………20

REFERENCES………………………………………………………………………………….21

1.0: INTRODUCTION. 1.1: Leases
Acquisition of assets, particularly expensive capital equipment is a major commitment for many businesses. Rather than pay for the asset outright using cash, businesses choose to use medium term finance for investment in capital assets. Hire Purchase and Leasing offer this solution.

Leasing and hire purchase are financial facilities which allow a business to use an asset over a fixed period, in return for regular payments. The business customer chooses the equipment he requires and the finance company buys it on behalf of the business.

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