Discuss these questions Explain Lease vs. Buy Why is leasing often preferable to

Question

Discuss these questions

Explain Lease vs. Buy

Why is leasing often preferable to buying

Explain Financial Accounting Standards Board (FASB) Statement #13

Explain some of the terms of operating lease

What is the primary test of feasibility in a reorganization

Why would a company call its outstanding bonds?

What is the purpose of Chapter 7 of the Bankruptcy Act

What is the effect of heavy use of off-balance sheet lease financing?

What does the basic doctrine of fairness under bankruptcy provisions state?

Explanation / Answer

Since, there are multiple questions, the first four have been answered.

__________

1) Explain Lease Versus Buy

A lease is an agreement between 2 parties - lessor and lessee. Both the parties are bound by the terms of the contract where the lessee agrees to pay a specific amount (as defined in the contract) for a period of time. The property/asset covered by the agreement is either returned by the lessee at the end of the contract period or purchased if the terms of the contract so provide after adjustments for lease payments made till date. It may or may not involve a down-payment at the inception of the lease.

In case of buy, the purchaser generally makes the complete payment for a property/asset in a single go. The buyer may decide to obtain a loan to finance the purchase or use his/her own funds to make the payment in full.

___________________

2) Why is leasing often preferable to buying?

Leasing is preferable to buying because the lessee (user of the property/lessee) is not required to make the complete payment for the asset/property (taken on lease). The payments are required to be made in specific amounts at periodic intervals in accordance with the conditions laid down in the lease agreement. Because of this, the user is not required to part with his/her funds in a lumpsum amount. The money saved can be used to earn interest and these earnings can also be used to meet some part of lease payments.

___________________

3) Explain Financial Accounting Standards Board (FASB) Statement #13

FASB 13 covers the accounting for different types of lease. It lays down the definitions and guidelines to be used in determining as to whether a lease between the 2 parties is to be treated as a capital lease or as an operating lease. The difference is important to identify the rights and obligations of both parties to the lease agreement (lessor and lessee). For example, the distinction is important to understand as to who is going to report the depreciation on the leased good in the financial statements. Both the lessor and lessee are required to maintain their accounts (like passing journal entries, preparing ledgers, and other lease related accounts) and comply with other rules and regulations laid down under this standard.

___________________

4) Explain some of the terms of operating lease

Under an operating lease, the lessor (owner of the property) permits the lessee (user of the property) to use the property in return for a specific amount (rent) for a period which is shorter than the economic life of the asset. An operating lease is for a short period of time as compared to an operating lease which is for a significant portion of the asset's useful life. Here, the lessee has no right to purchase the property at the end of lease period as the lessor continues to remain the owner of the asset, that is, the ownership right is not given to the lessee.

Related Questions

Navigate

• Browse (All)
• Browse D
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.