What are the advantages of operating and finance leases?

What are the advantages of operating and finance leases?

Solutions

Expert Solution

ANS: A lease is a contract under which one party agrees to rent property owned by another party for which regular payment for specific period is being paid.

There are two major types of lease - operating & Finance lease

Operating lease - It is a contract that allow for the use of the assets but doesnot convey the ownership right of the assets.

Some advantages of Operating lease are -

No risk of obsolescence as there is no transfer of ownership
Accounting of Operating lease is simpler
Lease payments are tax deductible
It provides greater flexibility for use of assets.

2. Finance lease - It is an arrangement by which a finance company is the legal owner of the asset for the duration of the lease, but lessee don't have any operating control over the asset.

Some advantages of finance lease are -

Helps to preserve business capital
Provides tax benefit
Avoid technological obsolescence
Brings economic growth as less initial cash investment required.
Low capital expenditure

jeff jeffy answered 1 year ago

Next > < Previous

Related Solutions

From the lessee’s perspective, finance leases and operating leases are a little different. In the earlier...

From the lessee’s perspective, finance leases and operating leases are a little different. In the earlier years of a lease, Select one: a. operating leases will cause income to be higher, compared to finance leases b. finance leases will enable the lessee to report higher income, compared to operating leases. c. finance leases will cause debt to be higher, compared to operating leases d. operating leases will cause debt to be higher, compared to finance leases

Suppose you did a pro-forma conversion of a company’s operating leases into finance leases. Describe how...

Suppose you did a pro-forma conversion of a company’s operating leases into finance leases. Describe how your pro-forma adjustments would affect the following variables. You should explain the adjustment, if any, that you would make. Then you should describe the effect of the adjustment on the variable – i.e., would it cause the variable to increase, decrease, stay the same or does the sign of the effect depend on the circumstances (i.e., it is indeterminant). a. Operating assets. b. Operating...

Leases What are the differences between operating and capital leases? Describe the particular leases of Target...

Leases What are the differences between operating and capital leases? Describe the particular leases of Target Corporation based on the liability section of Target Corporation's balance sheet. What impact have the leases had on Target Corporation's financial statements for the most recent year? Discuss the advantages and disadvantages of leasing a building versus purchasing one. Income statements Period Ending 1/28/2017 1/30/2016 Total Revenue $69,495,000 $73,785,000 Cost of Revenue $48,872,000 $51,997,000 Gross Profit $20,623,000 $21,788,000 Research and Development $0 $0 Sales,...

What is leasing? Define, compare, and contrast operating leases and financial (or capital) leases. How does...

What is leasing? Define, compare, and contrast operating leases and financial (or capital) leases. How does the Financial Accounting Standards Board’s Statement No. 13 define a financial (or capital) lease? Describe three methods used by lessors to acquire assets to be leased. Minimum of 120 words please

Why would a company try to classify leases as Operating Leases instead of capital leases in...

Why would a company try to classify leases as Operating Leases instead of capital leases in order to finance their operations? Company A reports Revenues of $5,000,000, COGS of $350,000 and net income of $75,000. Gross Inventory is $250,000 and the Accumulated Depreciation $75,000. Total assets are $3,000,000 and Equity is $1,000,000. Company B reports Revenues of $3,000,000, COGS of $175,000. Gross Inventory is $200,000 and the Accumulated Depreciation $75,000. Total assets are $2,000,000 and Equity is $500,000. Discuss and...

What are the advantages of using the Bayesian approach in Finance?

What are the implications for analysis if a company has significant operating leases?

Explain why companies would want to have leases classified as Operating leases. What would the indicators...

Explain why companies would want to have leases classified as Operating leases. What would the indicators be for this determination? More detailed and better to give an example to explain! Thank you!!

Which of the following statements regarding leases is CORRECT? A. Finance leases lower the debt ratio....

Which of the following statements regarding leases is CORRECT? A. Finance leases lower the debt ratio. B. A debit balance in the Leased Asset account on the balance sheet indicates an operating lease that is less than one year. C. Title is transferred to the lessee at the end of an operating lease term. D. If a lease does not meet one of the five criteria provided by U.S. GAAP guidelines, it is classified as an operating lease by default.

Two common types of leases are operating and financing leases. In your own words, describe and...

Two common types of leases are operating and financing leases. In your own words, describe and share examples of each. What are the major differences in accounting for each of these two types of leases?

Subjects