Reliable Information About Equipment Leasing And Its Benefits ...

Equipment leasing is an agreement between the lending and borrowing parties. This agreement takes place when the borrowing person promises the lender that they will pay for the commodity in question. The borrower has the right to use the commodity for the stipulated period of time.

To lease out in lay mans language may be used to mean handing over your equipment to someone else who over the stipulated period of time becomes the new owner. For this to be actualized, the new owner will be liable to pay some rental fees. It should however be noted that the lender will always remain to be the owner of the asset even over the agreed duration of time.

Leases are grouped into two categories, the finance lease or the rental agreement lease and the operating lease. In the rental lease the hire period is long to an extent that the lease holder tends to use the property for almost the rest of its life period. During this time the lessee will be using that particular item as if he is the rightful owner although he is not.

A lease is usually classified as an operating lease if in any case it does not secure for the lending party the upturn of the capital expense and a return on the invested funds throughout the lease period. Therefore, the property should always be treated as a fixed asset thus the receivable rentals should be added in income during the leasing period. Costs, including depreciation, incurred in earning the rental income should be charged to income.

Property ownership comes with many advantages and disadvantages. The advantages include the prospect of gainful operations over the productive life of the asset, more income from the appreciation in value of the asset, or residual value realization. The disadvantages include the changes in return due to changing economic conditions, technological obsolescence and idle capacity. The lender should be keen to expend any costs that they have incurred in negotiating and arranging the lease in the same year they were incurred.

A finance lease cannot just be cancelled. However, it may be cancelled under some conditions. For instance, this may happen upon occurrence of some remote contingency with permission of the lender or if the lease is extended or renewed. These conditions are usually rare.

It should be noted that when leasing, the rights and obligations involved in this contract will be similar to those of the outright buyer. One is required to be keen in considering the choices that are at their disposal. As a result of this, accounting comes in. One is accountable to the leasing terms and conditions.

The lessee will therefore, in the balance sheet include finance lease assets together with owned assets under the heading of tangible fixed assets. However, leased assets should be distinguished from owned assets and amount disclosed, again show a liability in respect of lease payments not yet made. The liability in respect of minimum lease payments not yet paid is split into long-term and current liabilities.

Equipment leasing has been of great importance and of benefit to many people over years. Despite the fact that even equipments from leasing, they also are termed as assets. These assets can be accounted for in the account books. This however will be determined by the fact that they will in future be of economic benefit by increasing the inflow to the enterprise.

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Source: http://immfinancial.com/2012/reliable-information-about-equipment-leasing-and-its-benefits/

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