Types and Examples Leasing | Gilmorevaletservice

Leasing is an ancient method of financing that is now gaining popularity in almost the whole world. Legally, the lease is not a sale of the property but a sale of rights (right to object to use) in a certain period. Among them there are two parties who own or lease of the asset and the other is the tenant or party to the lease asset. The tenant will use the asset for a specified period and make rent payments. The ownership of the asset remains with the lessor, but it is in possession of the right tenant to use and also transferred to tenants.

It was after various types. The two basic types of leases are finance leases and operating leases. These are explained below:

(1) Financial leasing: financial leasing assignment for all risks and rewards of ownership of an asset to the lessee. Ownership or title may or may not be transferred. A finance lease is a bit like a hire purchase agreement. A finance lease, the tenant agreed number of installments to pay, is entitled to an opportunity to the owner of the property to be practicing.

Example:
Suppose that AB takes on a new car lease for 3 years. Also assume that at the end of three years, called the company AB to ownership of a vehicle to take no additional cost. Here, not only to take leases of cars, but also AB company used as a means to cover the hire of the car. This type is called a finance lease or a finance lease.

(2) Operating Lease: According to the International Accounting Standard (IAS 17), it is an operating lease that is not a finance lease. Under an operating lease, the landlord has the right to lease out the asset or property for a specified period of use, but the risks and rewards of ownership are retained by the bottom.

Example:
Let us assume that my company has a complete sixth Stock in Eden Tower, a multi-storey building features. Further assume that my business room on this floor leased to XY Corporation.

Well, if they increase the value of these buildings because of the good things, so the owner is, can my company benefit from this growth through the sale of premises or by increasing the rent. Alternatively, if the building loses value, and my business patient of losses. This type of lease is classified as operating leases.

Besides these two main types of leasing a number of other types explained below:

(3) Sale and leaseback: The sale and lease-back agreement is a first asset sold to the financial institution. The sale will take place on the current market value. After the asset is transferred to a lease. This form of leasing is beneficial for companies that do not want to show the high debt balances in its accounts.

(4) Capital Lease: This type of lease is due to the Financial Standards Board, which does not apply to power in Pakistan. In this way, as a tenant will have an asset on the lease, he also recognizes as a liability in the balance.

(5) Leveraged Lease: This type of lease agreement involves three parties, including a lender, a landlord and a tenant. The lender and the landlord to collect on their hands, money to buy the asset. The asset was purchased was then transferred to the tenants on the lease is. The tenant makes regular payments to the landlord, which in turn makes payment to the lender.

(6) Cross Border Leasing: The leasing is like to work in other countries. Such a form of lease is very difficult under present circumstances. The reason is that different accounting methods, tax and random criteria victories abroad. Tax rules vary from country to country. So a big problem is how to present such a lease in the accounts.

But as with the latest developments in the accounting treatment is the same for each point across the world by the International Accounting Standards, and it is hoped that the cross-border leasing will grow rapidly in the near future.

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