LEASE FINANCING

&
HIGHER PURCHASE
FINANCE

 SUBMITTED BY:
Naveen pgfb0925
Pearl pgfb0928
shishir pgfb0939
shashank pgfb0938
Tushar pgfb0950
LEASE FINANCING
CONCEPT

By: Shashank
ESSENTIAL ELEMENTS OF LEASING

 PARTIES TO THE CONTRACT

 ASSETS

 OWNERSHIP SEPARATED FROM USER

 TERM OF LEASE

 LEASE RENTALS
 MODES OF TERMINATING THE LEASE
FINANCE LEASE
&
OPERATING LEASE

By : Shishir Tripathi
 FINANCIAL LEASE
 Long term,non-cancellable lease contracts
are known as financial leases
 The lessor transfer all the risk and reward
incidental to the ownership of the asset to
the lessee
 Cost of assets is fully recovered under single
lease term
 EXAMPLE-land,building,heavy machinery etc
 OPERATING LEASE
 Short-term cancellable lease contracts are known as
operating lease
 In a operating lease, the lessor does not t/f all the
risk & reward to the ownership of the assets
 The lessor does not depand on a single lessee for
recovery of his cost,so it is further re-leased to same
part

 Example-hiring a taxi for a particular travel,hiring a

computer with operators
LEVERAGED LEASE
 LEVERAGED LEASE

 Under leveraged leasing arrangement, a third party

is involved beside lessor and lessee. The lessor
borrows a part of the purchase cost (say 80%) of the
asset from the third party i.e., lender and the asset
so purchased is held as security against the loan.The
lender is paid off from the lease rentals directly by
the lessee and the surplus after meeting the claims
of the lender goes to the lessor.
LEASE FINANCING
CLASSIFICATION

By: Tushar Mittal

SALE AND LEASE BACK

 It is a transaction wherein the owner of a property

sells that property to a leasing company (lessor),
which in turn leases it back to the seller (lessee).

 Thus seller continues to be able to use the property,

but no longer owns it.

 The type of property involved can be anything from

residential or commercial real estate to equipment
or vehicles
SALE AND LEASE BACK
BENEFITS
 To seller: He gets a lump sum of
cash quickly

 To Buyer (Leasing Company): Acquires a

lower than market value purchase price,
along with a long term lease at a premium
rate.
DIRECT LEASE
● It is a financing
arrangement by which DIRECT
the lessor buys the LEASE

property (equipment)
and leases it directly to
the lessee.

● It is simply a
mechanism for BIPARTITE TRIPARTITE
LEASE LEASE
investing and making
future benefits.
 DIRECT LEASE
BIPARTITE LEASE TRIPARTITE LEASE
● Two parties are involved ● Three parties are
1. The equipment involved
supplier-cum lessor 1. The equipment
supplier
2. The lessee 2. The lessor
3. The lessee

● Ex: Sales-aid lease

● Ex: Upgrade lease
DIFFERENCE BETWEEN SALE -
LEASE BACK & DIRECT LEASE
SALE-LEASE BACK DIRECT LEASE

●Indirect form of ● Direct form of

leasing leasing
●Here the lessee and ● Here the lessee
the owner is same and owner are
entity. different entities.
 DOMESTIC LEASE AND
INTERNATIONAL LEASE

LEASE TRANSACTION

DOMESTIC LEASE INTERNATIONAL LEASE

IMPORT LEASE CROSS-BORDER LEASE

 BY: Naveen kumar
 Lease financing may be defined as a
contractual arrangement in which a party
owing an asset/equipment (lessor) provides
the asset/equipment to the user (lessee),
over a certain agreed period of time, in return
for periodic payment .
1. Financing of capital Goods
2. Additional sources of finance
3. Less costly
4. Simplicity
5. Tax benefits
1. Full security
2. Tax benefit
3. High profitability
4. High growth potential
1. Restrictions on the use of equipment
2. Limitations of financial lease
3. Loss of residual value
4. Consequences of default
LEASE FINANCING
V/S
HIGHER PURCHASE
FINANCING

 By : Pearl Juneja
LEASE & HIGHER PURCHASE

 Lease is an agreement of using asset for certain period and

paying rent on it at a pre-described rate of interest. It is a
temporary acquiring of an asset just to use it. Generally Pvt
schools are build on lease land. Interest on lease is fully
exempt from tax.
 Hire purchase is a purchase of an asset in which customer
makes down payment and finance rest of the amount
through financial institution or bank. On rest of the unpaid
amount he pays interest at a certain pre-described rate of
interest. After making complete payment the assets
becomes the legal right of customer.
LEASE FINANCING
 Ownership: The lessor is 
the owner, while lessee is
entitled to the use of the
leased asset/equipment only
in case of lease financing. The
ownership is never
transferred to the user.
 Depreciation: The
depreciation on the asset is
charged in the book of the
lessor in case of leasing.
HIGHER PURCHASE
Ownership: In contrast
the ownership of assets
passes on to the user, in
case of hire-purchase
finance, on payment of last
installment; before the
payment of last installment,
the ownership of the assets
vests in the finance
company.
 Depreciation: The hirer
is entitled to the
depreciation shield on the
assets hired by him.
Cond….
 Magnitude: Both lease
finance and hire-purchase are
generally used to acquire capital
goods. However, the magnitude of
funds involved in the former is very
large, for example the purchase of
aircrafts, ships, machinery, air-
conditioning plants and so on.
 Extent: leasing financing is
invariably 100% financing. It
requires no margin money or
immediate cash down payment by
the lessee.
 Magnitude: The cost of
acquisition in hire purchase is
relatively low. Hence automobiles,
office equipments, generators etc,
are generally hire- purchased.
 Extent: In a hire-purchase
transaction typically a margin
equal to 20-25% of the cost of the
equipments is required to be paid
by the hirer.
Cond….
 Maintenance: The cost of
maintenance of hired asset is to be
borne, typically by the hirer
himself. In case of finance lease
only.
 Tax benefit: In case of leasing,
the lessor is allowed to claim
depreciation and the lessee is
allowed to claim the rentals and
maintenance cost against taxable
income.
 Maintenance: The
maintenance of the leased asset is
the responsibility of the lessee. It is
the lessor who has to bear the
maintenance cost in an operating
lease.
 Tax benefit: The hirer is
allowed the depreciation claim and
finance charge and the seller may
claim any interest on borrowed
funds to acquire the asset for tax
purposes.