• To be able to operate
successfully, your business
might need to acquire assets or
capital equipment, such as
plant or machinery.
• These assets may include office
equipment, company vehicles,
engineering machines or
• You could buy all of this
equipment outright, or you
might decide to rent or lease it
instead. There are advantages
and disadvantages in both
management is a
&Control of flow
of materials, from their
initial purchase to
How to acquire assets for your business?
• Buying outright is a good option if you have
the capital available, or if it is essential that
you own the equipment. However, large
capital expenditure can affect your cashflow.
Types of Purchasing
Type of Purchase Description Examples
Raw materials Items with a lack of processing by the
supplier into a newly formed product.
Often these raw materials are not of
equal quality and are purchased by
Petroleum, coal, lumber, copper, zinc,
gold, and silver
Semi-finished products and components All items purchased from a supplier
required to support an organization’s
final that are production.
assemblies, subsystems, and systems
(seat assembly, steering assembly,
doors, and posts)
Finished products Products for internal use or products
that require no major processing before
resale to the end customer.
Furniture, computers, cars, and carts
Maintenance, repair, and operating
Items that do not go directly into an
organization’s product but are required
to run the business.
Spare parts, office and cleaning supplies
Production support items Materials required for packaging and
Tape, bags, inserts, and shrink-wrap
Services Services required to support the facility
or the business.
Customer support, temporary labor,
facilities, and legal
Capital equipment Assets intended to be used for more
than one year.
Machinery, computer systems, and
Transportation and third-party
A specialized type of service buying to
manage inbound and outbound material
Rail, truck, ocean, 3PL, and multimodal
• Tax incentives
• Possibility of depreciation deduction
• Higher initial expense
• Getting stuck with old equipment.
• Leasing means you may never own the asset
outright, although some lease arrangements let
you buy the asset at the end of the agreement.
• However, you can often update your equipment
without the expense of buying newer models.
Types of Leasing
• Operating Lease: An operating lease is basically a
rental agreement. The lessee records rent
expense for each of the lease payments.
• Capital Lease: A capital lease is a rental
agreement in form, but the substance of the
transaction is an asset purchase. With capital
leases, the lessee records and asset and related
liability rather than rental expense. The lessee
also record depreciation on the asset.
• Less initial expense
• Tax deductible
• Flexible terms
• Easier to upgrade equipment
• Higher overall cost
• You don't own it
• Obligation to pay for entire lease term
• With hire purchase, the business owns the asset once all the
payments have been made.
• One advantage of hire purchase is that the interest rate is likely to
be less than the bank loan or overdraft that may be needed to buy
the item outright.
• You can also claim capital allowances against tax from the beginning
of the hire purchase contract.
Types of Hire Purchase
• Consumer hire purchase: This cover the financing
of consumer goods purchased for personal,
family and household purposes. Therefore, the
hirer is a natural person (not business) and the
goods are obtained for non business purposes.
• Industrial hire purchase: Industrial hire purchase
refers to goods purchased by companies for use
in business or industry. For example is the
purpose of a machine by a company to be used in
• Convenience in Payment
• Helpful For Small Trader
• Encourages Savings
• Lesser Risk
• Higher Price
• Artificial Demand
• Difficulties in Recovery of Installments
Basis Buying Leasing Hire Purchase
Ownership of the
Buyer Lessor Hirer has the option
Depreciation Buyer Lessor Hirer
Rental Payments - Lease rentals cover
inclusive of the
and the interest for
the time period the
asset is utilized
Duration - Longer duration Shorter duration
Tax Impact Buyer responsible The total lease
rentals are shown
as expenditure by
The hirer claims the
asset as an expense
Buyer responsible Responsibility of
with the hirer