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Buying & Leasing
Mohamed Sharique. V
Materials Management
Contents
• Introduction
• Buying/Purchasing
• Leasing
• Hire Purchase
• Comparison
• Bibliography
Introduction
Introduction
• 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
furniture, computer
equipment, company vehicles,
engineering machines or
service equipment.
• 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
options
Materials Management
Materials
management is a
scientific technique,
concerned with
Planning, Organizing
&Control of flow
of materials, from their
initial purchase to
destination.
How to acquire assets for your business?
1.Buying/ Purchasing
2.Leasing
3.Hire Purchase
Buying/Purchase
Meaning
• 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
“grade.”
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.
Components, subassemblies,
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 (MRO)
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
shipping.
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
material-handling equipment
Transportation and third-party
purchasing
A specialized type of service buying to
manage inbound and outbound material
flows.
Rail, truck, ocean, 3PL, and multimodal
Advantages
• Ownership
• Tax incentives
• Possibility of depreciation deduction
Disadvantages
• Higher initial expense
• Getting stuck with old equipment.
Leasing
Meaning
• 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.
Advantages
• Less initial expense
• Tax deductible
• Flexible terms
• Easier to upgrade equipment
Disadvantages
• Higher overall cost
• You don't own it
• Obligation to pay for entire lease term
Hire Purchase
Meaning
• 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
business.
Advantages
• Convenience in Payment
• Helpful For Small Trader
• Encourages Savings
• Lesser Risk
Disadvantages
• Higher Price
• Artificial Demand
• Difficulties in Recovery of Installments
Comparison
Basis Buying Leasing Hire Purchase
Ownership of the
Asset
Buyer Lessor Hirer has the option
to purchase
Depreciation Buyer Lessor Hirer
Rental Payments - Lease rentals cover
the cost
Instalment is
inclusive of the
principal amount
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 lessee.
The hirer claims the
depreciation of
asset as an expense
Repairs and
Maintenance
Buyer responsible Responsibility of
the lessee
Responsibility lies
with the hirer
Bibliography
• Handbook of Materials Management-
P.Gopalakrishnan
• http://www.yourarticlelibrary.com/
• https://www-304.ibm.com/
• https://www.academia.edu/
• https://www.nibusinessinfo.co.uk/
• http://ccba.jsu.edu/accounting/LEASES.HTML
Thank You
“Life is not a matter of chance...it is a matter of choice”

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Mohamed sharique (buying and leasing)

  • 1. Buying & Leasing Mohamed Sharique. V Materials Management
  • 2. Contents • Introduction • Buying/Purchasing • Leasing • Hire Purchase • Comparison • Bibliography
  • 4. Introduction • 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 furniture, computer equipment, company vehicles, engineering machines or service equipment. • 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 options
  • 5. Materials Management Materials management is a scientific technique, concerned with Planning, Organizing &Control of flow of materials, from their initial purchase to destination.
  • 6. How to acquire assets for your business? 1.Buying/ Purchasing 2.Leasing 3.Hire Purchase
  • 8. Meaning • 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.
  • 9. 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 “grade.” 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. Components, subassemblies, 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 (MRO) 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 shipping. 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 material-handling equipment Transportation and third-party purchasing A specialized type of service buying to manage inbound and outbound material flows. Rail, truck, ocean, 3PL, and multimodal
  • 10. Advantages • Ownership • Tax incentives • Possibility of depreciation deduction Disadvantages • Higher initial expense • Getting stuck with old equipment.
  • 12. Meaning • 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.
  • 13. 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.
  • 14. Advantages • Less initial expense • Tax deductible • Flexible terms • Easier to upgrade equipment Disadvantages • Higher overall cost • You don't own it • Obligation to pay for entire lease term
  • 16. Meaning • 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.
  • 17. 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 business.
  • 18. Advantages • Convenience in Payment • Helpful For Small Trader • Encourages Savings • Lesser Risk Disadvantages • Higher Price • Artificial Demand • Difficulties in Recovery of Installments
  • 19. Comparison Basis Buying Leasing Hire Purchase Ownership of the Asset Buyer Lessor Hirer has the option to purchase Depreciation Buyer Lessor Hirer Rental Payments - Lease rentals cover the cost Instalment is inclusive of the principal amount 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 lessee. The hirer claims the depreciation of asset as an expense Repairs and Maintenance Buyer responsible Responsibility of the lessee Responsibility lies with the hirer
  • 20. Bibliography • Handbook of Materials Management- P.Gopalakrishnan • http://www.yourarticlelibrary.com/ • https://www-304.ibm.com/ • https://www.academia.edu/ • https://www.nibusinessinfo.co.uk/ • http://ccba.jsu.edu/accounting/LEASES.HTML
  • 21. Thank You “Life is not a matter of chance...it is a matter of choice”