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Lease Financing
Submit To: Sir Faraz Khan
Submit By: Imtiaz Ansari – BM 35107

Institute of Business & Technology
Introduction
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Contractual Agreement
Transfers The Right To Use
Agreed Period Of Time
For A Rental.
Asset Re...
History & Development Of Leasing
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leasing dates back to 200BC
Sumerians / Greeks leased goods
Romans had de...
Leasing In Pakistan
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Introduced as an alternative debt
financing
Approved by the religious Board
Islamic m...
Elements In Lease Structure
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The Transaction:
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Parties to a lease:
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◦
◦

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Asset-renting transaction
Distingu...
Limitations

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What cannot be owned cannot
be leased
A lease is structurally a rental
for the lease period
Lease pe...
Advantages of ‘LEASING’ to ‘LESSEE’

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Saving of capital
Flexibility and Convenience
Planning Cash Flows
Impr...
Disadvantages of ‘LEASING’ to ‘LESSEE’
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Higher Cost
Risk of being deprived the use of
asset
No Alteration in Asset...
Advantages of ‘LEASING’ to ‘LESSOR’
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Higher Profits
Tax Benefits
Quick Returns

Disadvantages of
‘LEASING’ to
‘LESS...
Types of
Leasing
Finance
Lease

Operating
Lease

Sale &
Leaseback

Direct
Lease

Leveraged
Lease
Finance Lease
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The lease transfers ownership of the asset to the lessee by the
end of the lease term
The lessee ...
Operating Lease
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The International Accounting Standards Committee defines an
Operating Lease as "any lease othe...
Sale and Leaseback
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In a sale and leaseback transaction, the owner of equipment sells
it to a leasing company which in t...
Direct Lease

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A direct lease can be defined as any lease transaction which is not
a "sale and leaseback" transaction. I...
Lease financing
Lease financing
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Lease financing

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Lease financing

  1. 1. Lease Financing Submit To: Sir Faraz Khan Submit By: Imtiaz Ansari – BM 35107 Institute of Business & Technology
  2. 2. Introduction        Contractual Agreement Transfers The Right To Use Agreed Period Of Time For A Rental. Asset Reverts Back Provision For Renewal Provision For Transfers Of Ownership (Hire Purchase)
  3. 3. History & Development Of Leasing        leasing dates back to 200BC Sumerians / Greeks leased goods Romans had developed a full body law relating to lease for movable and immovable property Modern concept 1877 Bell Telephone Company began renting telephones in USA 1930s the Railway Industry used leasing service the American Air Lines leased their jet engines
  4. 4. Leasing In Pakistan         Introduced as an alternative debt financing Approved by the religious Board Islamic modes of financing The first leasing company was established in 1983 National Development Leasing Corporation (NDLC). 31 companies were listed on KSE Annual Volume PKR 28 billion Total Assets PKR 84 billion
  5. 5. Elements In Lease Structure  The Transaction: ◦ ◦ ◦  Parties to a lease: ◦ ◦ ◦  Asset-renting transaction Distinguishes a lease from a loan lent out is money vs. lent out is the asset Two parties The owner and the user The lessor and The lessee The leased asset: ◦ ◦ ◦ ◦ ◦ The asset may be anything - an automobile, aircraft, machine, consumer durable, land, building or a factory Only tangible assets can be lease Intangible assets cannot be lease Handing over of possession is essential Right to use
  6. 6. Limitations     What cannot be owned cannot be leased A lease is structurally a rental for the lease period Lease period Lease rentals
  7. 7. Advantages of ‘LEASING’ to ‘LESSEE’        Saving of capital Flexibility and Convenience Planning Cash Flows Improvement in Liquidity Shifting of Risk of Obsolescence Maintenance and Specialized Services Off-The-Balance-SheetFinancing
  8. 8. Disadvantages of ‘LEASING’ to ‘LESSEE’     Higher Cost Risk of being deprived the use of asset No Alteration in Asset Penalties on Termination of Lease
  9. 9. Advantages of ‘LEASING’ to ‘LESSOR’    Higher Profits Tax Benefits Quick Returns Disadvantages of ‘LEASING’ to ‘LESSOR’    High Risk of Obsolescence Price Level Changes Long Term Investment
  10. 10. Types of Leasing Finance Lease Operating Lease Sale & Leaseback Direct Lease Leveraged Lease
  11. 11. Finance Lease      The lease transfers ownership of the asset to the lessee by the end of the lease term The lessee has the option to purchase the asset The lease term is for a major part of the useful life of the asset. The title may or may not eventually be transferred The present value of the minimum lease payments is greater than or substantially equal to the fair market value of the asset Financial leases and Hire-purchase: ◦ A hire-purchase transaction is usually defined as one where the hirer (user) has, at the end of the fixed term of hire, an option to buy the asset at a token value.
  12. 12. Operating Lease      The International Accounting Standards Committee defines an Operating Lease as "any lease other than a finance lease“. The lease term is significantly less than the economic life of the equipment The lessee enjoys the right to terminate the lease at short notice without any significant penalty. The lessor usually provides the operating know-how, suppliers, the related services and undertakes the responsibility of insuring and maintaining the equipment in which case an operating lease is called a 'wet lease'. the lessee bears the costs of insuring and maintaining the leased equipment is called a 'dry lease'.
  13. 13. Sale and Leaseback  In a sale and leaseback transaction, the owner of equipment sells it to a leasing company which in turn leases it back to the erstwhile owner (the lessee). The 'leaseback' arrangement in this transaction can be in the form of a 'finance lease' or an 'operating lease'.
  14. 14. Direct Lease  A direct lease can be defined as any lease transaction which is not a "sale and leaseback" transaction. In other words, in a direct lease, the lessee and the owner are two different entities. A direct lease can be of two types: Bipartite Lease and Tripartite Lease.

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