Question

Discuss the two common types of machinery leasing arrangements commonly used in
Zambia.

Answer 1

The two common types of machinery leasing arrangement used in Zambia are:-

i) Operating lease:- It is a kind of lease in which a person leases for a  period shorter than its likely useful life. For eg:- A person hiring a vehicle for a week is taking out an operating lease.

In hiring an asset under such a lease the lessee normally takes on few of the risks and reward of ownership of the asset. It is the lessor who stands to gain or lose from the speed the asset depreciates. The lessor usually retains responsibility for at least some of the cost associated with the leased asset.  The typical operating lessor will be a manufacturer or dealer in the assets in question

ii) Financial lease:- A finance lease, in economic substance very close to a loan to purchase an asset, secured on that asset. Hence, finance lessors are often  members of Banking groups. The lease rentals are calculated to ensure that the lessor recoups an amount equal to its capital outlay in purchasing the asset plus  interest at the rate sufficient to ensure a profit after deducting its own cost of raising finance. The insurance and running cost of the asset are borne by the lessee. So is the depreciation risk.