What are the advantages of operating and finance leases?

What are the advantages of operating and finance leases?

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 2 years ago

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