Which of the following is a disadvantage of leasing from a lessee's perspective?

Expert Solution

Firstly we need to understand the meaning of leasing. It is a method of financing fixed assets. It is defined as an agreement between the lessor and the lessee. Lessor is the leasing company who is the owner of the asset and lessee is the user of the asset and has to pay the rentals to the lessor.

There are different types of lease, operating lease, financial lease, sales and lease back, and leveraged lease.

Disadvantages of leasing.

1. In case of winding up the business, the asset may be taken back from the lessee which can lead to the disruption of operations

2. Lessee get only the right to use the asset, he cannot make any changes in the asset without asking from the lessor.

3. There can be some restrictions for the lessee, which can be put by the lessor.

4. Lessee has to pay rentals to the lessor, also these rentals also includes a finance cost.

5. Lessee has to bear the maintenance cost of the asset, even if he doesnot use it in the end.

6. Higher cost

7. Lessee is not entitled to benefits such as depreciation and investment allowance.

8. There is a penalty for the lessee if he quits before the expiry of the lease period.

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