Examine the relative merits of leasing versus hire purchase as a means of acquiring capital assets.

CPA-Financial-Management-Section-3 Revision kit

Advantages of leasing
No risk of obsolescence in the lessee

Leasing does not require a down payment to be made at the start of the contract unlike hire purchase. (No heavy initial capital outlay required)

Lease finance can be arranged relatively, cheaply, quickly and easily Operating leases are off-balance sheet financing

Advantages of hire purchase
Unlike leasing, hire purchase allows the user of the asset to obtain ownership at the end of the agreement period

The interest element of the payments is allowable against tax Tax shield on salvage value at the end of economic life of asset

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