it contains meaning, features, and difference between financial lease and hire purchase and types of financial lease and hire purchase

1. Presented by:
Dr. Jyoti Khare
Associate Professor
Govt. P. G. College
Maldevta(Raipur)
Dehradun,
Uttarakhand

2. LEASING ???
• The definition of lease is to rent property out to someone or to
agree to rent someone else's property. An example of lease is
when you rent your apartment out to a tenant.
An example of lease is when you decide to rent an apartment to
live in.
• A lease is a contract outlining the terms under which one party
agrees to rent property owned by another party. It guarantees the
lessee, also known as the tenant, use of an asset and guarantees
the lessor, the property owner or landlord, regular payments for a
specified period in exchange.

3. TAKEAWAYS OF LEASING
• FINANCIAL LEASING IS AN ALTERNATIVE WAY OF FINANCING
• WHEREBY A LICENSED LEASING COMPANY (THE “LESSOR’)
PURCHASES AN ASSET ON BEHALF OF ITS CUSTOMER (THE
“LESSEE”)
• IN RETURN FOR A CONTRACTUALLY AGREED SERIES OF
PAYMENTS
• INCLUDE AN ELEMENT OF INTEREST.
• THE LESSOR MAINTAINS OWNERSHIP OF THE ASSET
• WHILE THE LESSEE ENJOYS THE USE OF THE ASSET FOR THE
DURATION OF THE LEASE AGREEMENT,
• THE LESSEE BEARS ALL COSTS AND RISKS ASSOCIATED WITH THE
USE OF THE LEASED ASS

4. TYPES OF LEASING –
(1) FINANCE LEASING
• A long-term lease over the expected life of the equipment, usually three years or
more, after which you pay a nominal rent or can sell or scrap the equipment - the
leasing company will not want it any more.
• The leasing company recovers the full cost of the equipment, plus charges, over
the period of the lease.
• Although ownership is not transferred, having the responsibility maintaining and
insuring it.
• Leased asset on the balance sheet as a capital item, or an item that has been
bought by the company.
• Leases of over seven years, and in some cases over five years, are known as 'long
funding leases' under which you can claim capital allowances as if you had
bought the asset outright.

5. TYPES OF LEASING –
(2) OPERATING LEASING
Considering operating leasing, remember the following points:
• Operating leasing is useful if you don't need the equipment for its
entire working life
• The leasing company will take the asset back at the end of the lease
• The leasing company is responsible for maintenance and insurance
• Don't have to show the asset in balance sheet

6. TYPES OF LEASING –
(3) CONTRACT HIRE
• Contract hire is often used for company cars and:
• The leasing company takes some responsibility for
management and maintenance, such as repairs and
servicing
• Don't have to show the asset on Balance Sheet

7. TYPES OF LEASING –
(4) Leveraged and non-leveraged leases
• In leveraged and non-leveraged leases, the value of the asset leased
may be of a huge amount which may not be possible for the lessor to
finance. So, the lessor involves one more financier who will have
charge over the leased asset.
(5) Conveyance type lease
• In Conveyance type lease, the lease will be for a long-period with a
clear intention of conveying the ownership of title on the lessee.

8. TYPES OF LEASING –
(6) Sale and leaseback
• In a sale and leaseback, a company owning the asset sells it to the lessor. The lessor pays immediately
for the asset but leases the asset to the seller. Thus, the seller of the asset becomes the lessee. The
asset remains with the seller who is a lessee but the ownership is with the lessor who is the buyer. This
arrangement is done so that the selling company obtains finance for running the business along with
the asset.
(7) Full and non pay-out lease
• A full pay-out lease is one in which the lessor recovers the full value of the leased asset by way of
leasing. In case of a non pay-out lease, the lessor leases out the same asset over and over again.
(8) Specialized service lease
• The lessor or the owner of the asset is a specialist of the asset which he is leasing out. He not only
leases out but also gives specialized personal service to the lessee. Examples are electronic goods,
automobiles, air-conditioners, etc.

9. TYPES OF LEASING –
(9) Sales aid lease
• In case, the lessor enters into any tie up arrangement with manufacturer for
the marketing, it is called sales aid lease.
(10) Cross border lease
• Lease across national frontiers are called cross border lease, Shipping, air
service, etc., will come under this category.
(11) Tax oriented lease
• Where the lease is not a loan on security but qualifies as a lease, it will be
considered a tax oriented lease.

10. TYPES OF LEASING –
(12) Import Lease
• In an Import lease, the company providing equipment for lease
may be located in a foreign country but the lessor and the lessee
may belong to the same country. The equipment is more or less
imported.
(13) International lease
• Here, the parties to the lease transactions may belong to
different countries which is almost similar to cross border lease.

11. Source: https://efinancemanagement.com/sources-of-finance/advantages-and-
disadvantages-of-leasing

12. HIRE PURCHASE ??
•A hire- purchase agreement is one under which a
person takes delivery of goods promising to pay
the price by a certain number of installments and,
until full payment is made, to pay hire charges for
using the goods.
•Hire purchase is an arrangement for buying
expensive consumer goods, where the buyer
makes an initial down payment and pays the
balance plus interest in installments..

13. KEY TAKEAWAYS (HIRE PURCHASE)
• Hire purchase agreements are not seen as an extension
of credit.
• In a hire purchase agreement, ownership is not
transferred to the purchaser until all payments are
made.
• Hire purchase agreements usually prove to be more
expensive in the long run than purchasing an item
outright.

14. FEATURES OF HIRE PURCHASE
Features of Hire purchase are provided and discussed as
below-
• The payment of the installments is to be done by the buyer i.e., the hirer to the seller
over the specified period of time.
• Buyer gets the possession of the goods immediately.
• In case of any default of installment payment by the hirer, the vendor has the right to
repossess the goods. In that case, the payment already received by the vendor from
hirer will be treated as hire charged for the period for which the goods were held.
• The ownership of goods is transferred to the buyer only upon the payment of last
installment.
• The hire purchase installment amount includes the principal amount as well as the
interest charged upon it.
• Interest is generally charged on the flat rate

15. TYPES OF HIRE PURCHASE
• Consumer Hire Purchase: In this type, the goods are hired by the
buyer for non-business purposes i.e. for his personal use. This can
also be for family or other household purposes apart from the
business. The hirer here is not the business but the natural person.
• Industrial Hire Purchase: Contrary to the above, here, the hirer is
not the natural personal but the companies or the industries that take
the goods on hire for their business purposes. Example: the hire
purchase of machineries for the use in industries.

16. Advantages Disadvantages
Convenience in payment Higher price
Increased Volume Of Sales Artificial demand
Increased profit Difficulties in recovery of installment
Encourages savings The ownership of the asset is not transferred till
the payment of last installment
Helpful for small traders Great financial burden
Earning of interests to the seller The possession of the asset is taken over by the
seller (if Buyer is unable to pay any installment)
Lesser risk Heavy risk
Higher Purchase

18. LEASING VS. HIRE-PURCHASING
S.N
0.
Basis Hire- Purchasing Leasing
1. Meaning The deal in which one party can use the
asset of the other party for the payment of
equal monthly installments is known as Hire
Purchasing
Leasing is an agreement where one
party buys the asset and allows the
other party to use it by paying
consideration over a specified period is
known as Leasing.
2. Governing
Accounting
Standard
No Specific Accounting Standard AS-19
3. Down
Payment
Required Not Required
4. Consideration Initial payment plus installment. Lease Rentals
5. Duration Short Term Comparatively Long term
6. Repairs &
Maintenance
Responsibility of hire purchaser. Depends upon the type of lease
7. Installments Principal plus interest Cost of using the asset
8. Tax Impact Hirer claims the depreciation on the assets as Total lease payment are shown as