NAME :- RUTURAJ SHINDE

Std. :- Mcom Part-I

SUBJECT :- ADVANCE ACCOUNTING
TOPIC :- ACCOUNTING FOR LEASES

What is LEASE ?
Lease is an agreement between two
parties i.e a lessor & a lessee this
agreement is called as Lease
agreement .
The agreement is for stipulated
period .
The lessor allows the lessee to use
the asset owned by him ( the lessor )
.
The lessee pays certain sum of

Types of lease agreement

There are two types of lease
agreements they are
1 . Capital Lease or finance lease
2 . Rental or opening lease

Capital lease or finance

lease
Conditions :1 . The lessor transfers title of the
asset to the lessee till the end of
lease contract .
2 . The lease contains an option to
purchase the asset at a bargain price
.
3 . The lease period is equal to or
greater than 75% of the economic
life of the asset

Rental or opening lease

Conditions
1 . The lessor transfers possession of
the leased property for a shorter
period to the lessee .
2 . The lessee is not allowed to pay
maintenance charges due to his
short term ownership .

Difference between leasing and hire

purchase
1. Under hire purchase ownership of asset
passes over to the hire purchaser only
after payment of last installment but in
case of lease the title remains only with
tha lessor.
2. Under hire purchase system the purchaser
charges the depreciation in his books for
the asset even his not owner but in case of
lease the lessor does not charge
depriciation receives only rent and interest.

Advantages of leasing
A ) Benefits to the lessor :1 . The lessor gets the interest as well
as facility to write-off the
depreciation .
2 . The profits generated through lease
contract are higher than any other
contracts .

B ) Benefits to the lessee :1 . The lesse on have to pay periodical

rental amount .
2 . The lesse can charge his entire
interest against the income earned
by leased property

Disadvantages of leasing
1 . The lessee gets only right to use
asset but does not get ownership
2. The lessor has right to cancel the
agreement if the lessee makes
default in payment of rent
3. There is no warranty or any kind of
protection against these type of
contract

Characteristics of leasing
Leased property can be given to
ennumber of lessees
The lease period can not be for life
time period it has certain limits
As the property used by many
parties the reason should be
generated for the use
Leaser is responsible to incur
expenses on repairs and
maintanance

Thank you