Leasing and Hire-Purchase:
1. Leasing
can be described as a contract between two parties, whereby the owner of an
asset transfers his right of use to some other party on payment of a fixed
periodical rent.
2. Owner
of the asset known as the lessor and the user of the asset as the
lessee
3. Ownership
of the asset remains with the lessor only during the tenure.
4.
Advantages
to Lessor:
a.
Expansion of business
b.
Tool of tax planning
Advantages to Lessee:
a.
Reduction in capital investment
b.
Elimination of risk of obsolescence
c.
Increase in borrowing capacity
d.
Reduction in tax liability
e.
Application of certain laws
f.
Interference of financial institutions
5.
Types of Leases:
a.
Finance or Capital lease : Transferred
entire economic life of asset to lessee.(Non-Cancelable)
§
Primary Lease
§
Secondary
b.
Operating lease: Not transferred
risk or reward to lessee, cancelable and lower maturity period. i.e telephone,
computer, vehicle etc..
c.
Service lease: Covers the cost of
maintenance and servicing.
d.
Leveraged lease: "Third Party Lease".
6. Under
hire purchase agreement, the buyer pays the price of the goods in instalments.
7. The
person who sells the goods is called 'Hire Vendor' while the
person who purchases these is called 'Hire Purchaser'.
8. Under
the instalment system, ownership of the goods is immediately transferred to the
buyer.
9. In
hire purchase agreement, if the buyer fails to pay any instalment, the seller
can take back the goods.
10. But
under the instalment basis, the seller cannot take back the goods. He has to
file a suit against the buyer for recovery of his dues.
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