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` World over leasing has emerged as an
innovative technique of financing industrial
equipment.
` Source of finance.
` The technique of leasing gives the facility to
possess and operate the asset without
owning the asset
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` as per ICaI..
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` It is basically a contract whereby the owner of the
asset (the lessor) grants to another party (the
lessee) to exclusive right to use the asset for an
agreed period of time, for an agreed amount
payable on periodical basis (lease rentals) over
the specified lease period.
` Using the asset by the owner of the asset, but
without transferring the title of ownership.
` Under the lease financing, an asset can be
acquired without incurring the initial
purchase cost by just making payment of lease
rentals over a specified period of the lease
contract.
` It is more or less an off-balance sheet financing,
where neither the acquisition of asset nor the loan
is to be shown in the financial position statement.
` The periodical lease rentals paid will be shown in
the financial position statement as business
expenditure.
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` Idbi HomeFinance Ltd.
` Shriram investment Ltd.
` LIC housing finance Ltd.
` Sidbi Bank.
` Tata Investment Corporation.
` Mahindra & Mahindra Financial services Ltd.
` Sicom limited
There are more than 3469 leasing &
Finance co.s & mumbai is leading with 315 co.s
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` In competitive situation, the lessee will tend
to obtain lease finance where the lease
rentals are lowest.
` The lessor has to recover his principal
amount invested as well as the desired
burn on investment. Lease rent structure
may be in the following ways:
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- In this plan, the annual
lease rent payable is divided into equal
amounts by applying the annuity factor for
the specified period of lease at a
predetermined interest rate taken as
discount rate.
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- Under this plan, the
annual lease rent will go on increasing
every year with a specified rate of increase.
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ΠIn this plan, the
annual lease rent payable in the initial year
would be less, fixed up in such a way to
meet the nominal amount comparative to
the cost of investment, but the ending years
of lease periods, the rest of the amount is
payable in lump sum.
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- Under this plan,
the lease rent need not be paid for the
initial specified period. But lease rent
payable in the subsequent period, in equal
annual amounts will recover the cost of
financing for the deferred payment period
also.
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` upta Leasing Ltd. is proposing to acquire special
purpose machinery. The initial cost of machine is Rs.
4,00,000. Depreciation allowance is given @ 20% p.a.
on reducing balance method. To finance the entire cost,
the company intend to get a loan of Rs. 4,00,000 on
interest @ 18% p.a.
` another proposal has come for review to take the same
machinery on lease basis on annual lease rentals of Rs.
1,20,000 for a period of 5 years. How would the
acquisition of assets under the above two alternatives
effect the profit and loss account and Balance Sheet.
` p 14,00,000
` admin. & other expensses 9,00,000
` F a 6,00,000 Ca 400000
` Equity 700000 CL 300000
` irish Leasing Ltd. is proposing to acquire special
purpose plant. The initial cost of Plant is Rs. 8,00,000.
Depreciation allowance is given @ 20% p.a. on
reducing balance method. To finance the entire cost, the
company intend to get a loan of Rs. 8,00,000 on interest
@ 18% p.a.
` another proposal has come for review to take the same
machinery on lease basis on annual lease rentals of Rs.
2,40,000 for a period of 5 years. How would the
acquisition of assets under the above two alternatives
effect the profit and loss account and Balance Sheet.
` p 24,00,000
` admin. & other expensses 14,00,000
` F a 9,00,000 Ca 600000
` Equity 800000 CL 700000