CIMA F3 Course Notes. Chapter 10. Lease vs Buy

Size: px
Start display at page:

Download "CIMA F3 Course Notes. Chapter 10. Lease vs Buy"

Transcription

1 CIMA F3 Course Notes Chapter 10 Lease vs Buy Personal use only - not licensed for use on courses 137

2 1. Leasing Leasing Leasing is a process by which a firm can obtain the use of a certain fixed assets for which it must pay a series of contractual, periodic, tax deductible payments. The lessee is the receiver of the services or the assets under the lease contract and the lessor is the owner of the assets. 2. Types of leases Finance leases A financial lease is usually written for a term near to but not exceeding the economic life of the equipment. Typical elements: Periodic lease payments made Ownership of the equipment reverts to the lessor at the end of the lease term, Not able to be cancelled, with a legal obligation to continue payments to the end of the term The lessee maintains the equipment On balance sheet (it appears as an asset on the balance sheet) Effectively a form of finance using the asset as security. Operating leases An operating lease is typically for a much shorter time frame. Typical elements are: Periodic lease payments made Ownership of the equipment remains with the leesor May be cancellable The lessor maintains the equipment Off-balance sheet (i.e. does not appear as an asset on the balance sheet rental payments are charged as an expense) Personal use only - not licensed for use on courses 138

3 3. Benefits of leasing Some of the benefits of leasing include: Leasing is less capital-intensive than purchasing, so if a business has constraints on its capital, it can grow more rapidly by leasing assets than by purchasing. No initial down payment is needed, whereas the loan to finance an asset purchase may require a deposit to be put down (e.g. often for mortgages on property this can be 20-30%) Capital assets may fluctuate in value. Leasing shifts risks to the lessor. Loans (used for asset purchases) may include covenants restricting operations leases do not. May allow payment over a longer period than the terms of an equivalent loan, reducing the amounts paid each period. It may be the only practical option e.g. if the asset can not be purchased, for example a building in a specific location. Protection against obsolescence (e.g. computer equipment) Greater flexibility (particularly operating leases) Leasor may be able to provide expert technical advice and maintenance support (e.g. computer equipment) 4. Lease vs Buy Calculations The key type of calculation in this area is a lease vs buy calculation where you have to decide whether to lease or buy the asset. Approach The basic approach is to do an NPV calculation of all relevant cashflows involved in leasing, and this discounted at the post tax cost of debt. A positive NPV means that the lease is cheaper than a loan. The two key relevant cashflows to include in the NPV are: Personal use only - not licensed for use on courses 139

4 Relevant costs of leasing vs buying Lease payments Lost capital allowances (a lost benefit if leasing not buying) Lost resale values (another lost benefit if leasing) Relevant incomes Savings on purchase price Tax reclaimable on lease payments Note the relevant discount rate is the post tax rate. If you are given a pretax rate you need to multiply this by (1-tax rate) to get the post tax rate. Example An airline is trying to decide between purchasing an new aircraft at 12m, which they will use for three years and are then be able to sell for 6m, using a bank loan at 10% pre tax, or making three equal lease payments of 2m to a leasing company starting immediately. Tax is 30% payable in the same year in which profits are made. 25% reducing balance writing down allowances are available. Solution The relevant cash flows for leasing are: Time Relevant income Saving on price Tax on lease payments (30% x lease payments) Relevant costs Lease payments Lost capital allowances (W1) Lost resale value Net Discount rate x(1-0.3) = 7% Present value Net Present Value 1.54 A positive NPV means that leasing is the best option by 1.54m in present day terms. Personal use only - not licensed for use on courses 140

5 W1 Capital allowances Capital allowances are calculated by allowing 25% each year to be chargeable to tax and reducing the balance at the end of year. This can be charged against tax (assuming the company is profitable) and so there is a tax benefit of 30% of this amount. In the final year, and amount on which a claim has yet to be made is claimable. Asset cost 12 Year 1 25% = 3 Tax saved = 3 x 30% = 0.9 Balance end Y1 9 Year 2 25% = 2.25 Tax saved = 2.25 x 30% = 0.68 Balance end Y Year 3 Resale value 6 Balancing allowance 0.75 Tax saved = 0.75x 30% = 0.23 Tax treatment on interest on finance leases In some tax jurisdictions, tax is treated differently on the depreciation element of finance leases and the interest element. If for example the total of all lease payments on a 3 year contract was 18,000 and the price of the asset to purchase was 15,000: 1. Depreciation element 15,000 of the lease payments would be allowable for tax as depreciation The annual tax saving would be ( 15,000/3) x tax rate (at 30% = 1,500) Personal use only - not licensed for use on courses 141

6 2. The effective interest on a finance lease is: The total lease payments made purchase price of the asset. = 18,000-15,000 = 3,000 The amounts allowable for tax on this element are not the same in each year, and must be calculated using the sum of the digits method. For 3 years, add up = 6. The first year has more interest so it gets 3/6 ths, the second year 2/6 ths and the last year 1/6 th as shown below. Year Calculation Interest Tax saved (e.g. at 30%) 1 3,000 x 3/6 1, ,000 x 2/6 1, ,000 x 1/ In total then the tax savings in: - year 1 are 1, = year 2 are 1, = year 3 are 1, = 1650 Personal use only - not licensed for use on courses 142

7 Strategic Mock Exams E3, F3 and P3 Based around the latest Preseen 2 full mocks are available for each strategic subject Full marking and detailed feedback Full mock marking Detailed and personalised feedback to focus on helping to pass the exams Personal coaching on your mock exam 1hr personal coaching session with your marker Personalised feedback and guidance Exam technique and technical review Strategic and Financial analysis of the Pre-seen Strategic analysis - all key business strategy models in E3 Financial analysis based around the F3 syllabus Risk analysis based around the P3 syllabus 30 page strategic report Full video analysis of how all key models apply to the unseen Video introduction to all the key models Personal Coaching Courses Personal coaching to get you through the exam Tuition Course Personalised tuition to give you the required syllabus knowledge tailored to your needs Revision Course - Practise past exam questions with personal feedback on your technical weaknesses and exam approach and technique Resit Course Identifying weaknesses from past attempts and providing personalised guidance and study guides to get you through the exam Personal use only - not licensed for use on courses 143

CIMA F3 Course Notes. Chapter 3. Short term finance

CIMA F3 Course Notes. Chapter 3. Short term finance CIMA F3 Course Notes c Chapter 3 Short term finance Personal use only - not licensed for use on courses 31 1. Conservative, Aggressive and Matching strategies There are three over-riding approaches to

More information

Types of Leases. Lease Financing. FINC 3630 Yost

Types of Leases. Lease Financing. FINC 3630 Yost Lease Financing Types of Leases Operating Leases Financial Leases or Capital Leases Sale and Leaseback Arrangements Combination Leases Synthetic Leases Operating Leases Payments include maintenance and

More information

AFM 391 Case Concepts

AFM 391 Case Concepts AFM 391 Case Concepts a. Why do companies lease assets rather than buy them? 1. 100% financing at fixed rates. Leases are often signed without requiring any money down from the lessee, which helps to conserve

More information

You can select the equipment by working with a vendor or a manufacturer, which offers leasing.

You can select the equipment by working with a vendor or a manufacturer, which offers leasing. Why Should I Lease Equipment? As businesses prepare to compete and grow in a new millennium, many are searching for proven new ways to address their equipment financing challenge. The old ways won't meet

More information

CIMA F3 Course Notes. Chapter 11. Company valuations

CIMA F3 Course Notes. Chapter 11. Company valuations CIMA F3 Course Notes Chapter 11 Company valuations Personal use only - not licensed for use on courses 144 1. Company valuations There are several methods of valuing the equity of a company. The simplest

More information

Types of Leases. Lease Financing

Types of Leases. Lease Financing Lease Financing Types of leases Tax treatment of leases Effects on financial statements Lessee s analysis Lessor s analysis Other issues in lease analysis Who are the two parties to a lease transaction?

More information

A Leveraged Lease Primer

A Leveraged Lease Primer A Leveraged Lease Primer Understanding the tax and accounting treatments of this powerful equipment finance tool. The leveraged lease product has been used by many large corporations to finance capital

More information

Long-term sources - those repayable beyond 1 year. No guaranteed return, but potential is unlimited. High risks require a high rate of return.

Long-term sources - those repayable beyond 1 year. No guaranteed return, but potential is unlimited. High risks require a high rate of return. Sources of Finance Ord Shares Total Finance Long Short Term Term Pref Shares Loans & Debens Bank O/D Leases Debt Factoring Long-term sources - those repayable beyond 1 year. Ordinary Shares The risk capital

More information

Week 13, Chap 9 Accounting 1A, Financial Accounting

Week 13, Chap 9 Accounting 1A, Financial Accounting Week 13, Chap 9 Accounting 1A, Financial Accounting Reporting and Interpreting Liabilities Instructor: Michael Booth Understanding the Business Debt is considered riskier than equity. Interest is a legal

More information

11.437 Financing Community Economic Development Class 6: Fixed Asset Financing

11.437 Financing Community Economic Development Class 6: Fixed Asset Financing 11.437 Financing Community Economic Development Class 6: Fixed Asset Financing I. Purpose of asset financing Fixed asset financing refers to the financing for real estate and equipment needs of a business.

More information

THE LEASE VERSUS BUY DECISION

THE LEASE VERSUS BUY DECISION Over the past thirty years, U.S. Bancorp Equipment Finance has grown into one of the largest bank affiliated industrial finance companies in the nation. With total assets in excess of $8 Billion and offices

More information

Theoretical & Regulatory Framework of Leasing

Theoretical & Regulatory Framework of Leasing Theoretical & Regulatory Framework of Leasing - Asset/Fund based financial services Module III Prof. Contents Concept Elements Classification Advantages and Limitations of Leasing Structuring of Leasing

More information

Title: Common Terms Used in the Leasing Industry

Title: Common Terms Used in the Leasing Industry Acceptance Certificate: Title: Common Terms Used in the Leasing Industry When leased equipment is delivered and installed, the Lessee typically authorizes the Lessor, in writing, to pay for it. The Lessee's

More information

Accounting for Leases

Accounting for Leases Accounting for Leases 15.511 Corporate Accounting Summer 2004 Professor SP Kothari Sloan School of Management Massachusetts Institute of Technology July 6, 2004 1 Agenda Understand the rationale for leasing

More information

Off-Balance Sheet Financing: Operating Leases & Other Topics

Off-Balance Sheet Financing: Operating Leases & Other Topics Off-Balance Sheet Financing: Operating Leases & Other Topics Session 7 FIN 551 - Financial Statement Analysis 1 Let s Discuss Leases FIN 551 - Financial Statement Analysis 2 1 Off-Balance-Sheet Obligation

More information

Vehicle & Equipment Finance

Vehicle & Equipment Finance Vehicle & Equipment Finance Vehicle & Equipment Finance There are a number of different ways to finance the purchase of vehicles and equipment in your business including lease, chattel mortgage and commercial

More information

Dealing with Operating Leases in Valuation. Aswath Damodaran. Stern School of Business. 44 West Fourth Street. New York, NY 10012

Dealing with Operating Leases in Valuation. Aswath Damodaran. Stern School of Business. 44 West Fourth Street. New York, NY 10012 Dealing with Operating Leases in Valuation Aswath Damodaran Stern School of Business 44 West Fourth Street New York, NY 10012 adamodar@stern.nyu.edu Abstract Most firm valuation models start with the after-tax

More information

Adapted, with permission, from The Canadian Institute of Chartered Accountants, Toronto, Canada, October, 1998.

Adapted, with permission, from The Canadian Institute of Chartered Accountants, Toronto, Canada, October, 1998. Introduction to LEASING Adapted, with permission, from The Canadian Institute of Chartered Accountants, Toronto, Canada, October, 1998. COMMON LEASING TERMS The following list comprises some standard definitions

More information

Mary Kelly, BBS, FCCA. Martin Kelly, BSc (Econ) Hons, DIP.Acc, FCA, MBA, MCMI.

Mary Kelly, BBS, FCCA. Martin Kelly, BSc (Econ) Hons, DIP.Acc, FCA, MBA, MCMI. Article: Accounting for Leases - IAS 17 Leases By: Mary Kelly, BBS, FCCA. Martin Kelly, BSc (Econ) Hons, DIP.Acc, FCA, MBA, MCMI. Examiner: Professional 1 Corporate Reporting Introduction IAS 17 Leases

More information

Chapter 18. Web Extension: Percentage Cost Analysis, Leasing Feedback, and Leveraged Leases

Chapter 18. Web Extension: Percentage Cost Analysis, Leasing Feedback, and Leveraged Leases Chapter 18 Web Extension: Percentage Cost Analysis, Leasing Feedback, and Leveraged Leases Percentage Cost Analysis Anderson s lease-versus-purchase decision from Chapter 18 could also be analyzed using

More information

Manage Risk with Fixed Assets

Manage Risk with Fixed Assets Manage Risk with Fixed Assets Presented by: V. Lynn Lambert, CPA Lambert Lanoue & Smoker LLC www.lambertcpas.com Outline Analysis of Lease vs Purchase of Fixed Assets New IRS Repair Regulations Capital

More information

Leases Learning Objectives. Overview of Leasing. Advantages of Leasing

Leases Learning Objectives. Overview of Leasing. Advantages of Leasing Leases Learning Objectives 1. Describe the characteristics and advantages of leases 2. Operating leases vs Captial leases 3. Determine rental payments 4. Account for operating leases - lessee 5. Account

More information

PREVIEW OF CHAPTER 21-1. Intermediate Accounting 15th Edition Kieso Weygandt Warfield

PREVIEW OF CHAPTER 21-1. Intermediate Accounting 15th Edition Kieso Weygandt Warfield PREVIEW OF CHAPTER 21 21-1 Intermediate Accounting 15th Edition Kieso Weygandt Warfield 21 Accounting for Leases LEARNING OBJECTIVES After studying this chapter, you should be able to: 21-2 1. Explain

More information

CAIRNS REGIONAL COUNCIL LEASING GUIDELINES

CAIRNS REGIONAL COUNCIL LEASING GUIDELINES CAIRNS REGIONAL COUNCIL NO.1:02:46 General Policy LEASING GUIDELINES Intent Scope To ensure that Council: (i) complies with the Leasing in the Queensland Public Sector Policy Guidelines, (revised December

More information

Funding options for Commercial Projects

Funding options for Commercial Projects Funding options for Commercial Projects SOLAR360: LEVEL 18, 499 ST KILDA RD, MELBOURNE VIC 3004 PHONE 1300 600 360 - www.solar360.com.au The following financing solutions apply to commercial solar and

More information

buy or lease? Cash Management Here are five things to consider before your company makes its next equipment investment. B Y P AUL B.

buy or lease? Cash Management Here are five things to consider before your company makes its next equipment investment. B Y P AUL B. Cash Management buy or lease? Here are five things to consider before your company makes its next equipment investment. B Y P AUL B. WEISS Is your company s current overriding goal to make its balance

More information

Proposed Lease Accounting Changes: Impact on Asset Finance Deals

Proposed Lease Accounting Changes: Impact on Asset Finance Deals Proposed Lease Accounting Changes: Impact on Asset Finance Deals In August 2010, the International Accounting Standards Board ( IASB ) issued a proposal which, if adopted, will overhaul lease accounting

More information

Time Value of Money Concepts

Time Value of Money Concepts BASIC ANNUITIES There are many accounting transactions that require the payment of a specific amount each period. A payment for a auto loan or a mortgage payment are examples of this type of transaction.

More information

BA 351 CORPORATE FINANCE. John R. Graham Adapted from S. Viswanathan LECTURE 5 LEASING FUQUA SCHOOL OF BUSINESS DUKE UNIVERSITY

BA 351 CORPORATE FINANCE. John R. Graham Adapted from S. Viswanathan LECTURE 5 LEASING FUQUA SCHOOL OF BUSINESS DUKE UNIVERSITY BA 351 CORPORATE FINANCE John R. Graham Adapted from S. Viswanathan LECTURE 5 LEASING FUQUA SCHOOL OF BUSINESS DUKE UNIVERSITY 1 Leasing has long been an important alternative to buying an asset. In this

More information

Leases. Objectives. Understand the rationale for leasing and the distinction between Operating and capital leases.

Leases. Objectives. Understand the rationale for leasing and the distinction between Operating and capital leases. Leases Objectives Understand the rationale for leasing and the distinction between Operating and capital leases. Understand the Income Statement and Balance Sheet differences Between operating and capital

More information

Chapter 20 Lease Financing ANSWERS TO END-OF-CHAPTER QUESTIONS

Chapter 20 Lease Financing ANSWERS TO END-OF-CHAPTER QUESTIONS Chapter 20 Lease Financing ANSWERS TO END-OF-CHAPTER QUESTIONS 20-1 a. The lessee is the party leasing the property. The party receiving the payments from the lease (that is, the owner of the property)

More information

Effects analysis for leases (IASB-only) 1. Summary. Changes being proposed to the accounting requirements. Page 1 of 34

Effects analysis for leases (IASB-only) 1. Summary. Changes being proposed to the accounting requirements. Page 1 of 34 Effects analysis for leases (IASB-only) 1 BC329 The IASB is committed to assessing and sharing knowledge about the likely costs of implementing proposed new requirements and the likely ongoing associated

More information

Interest Expense Principal

Interest Expense Principal ACCOUNTING BY THE LESSOR AND LESSEE A lease is a contract between a lessor (the owner of the property) and a lessee (the user of the property). Normally the lessee makes periodic payments in exchange for

More information

GROWTH PARTNERS. Funding. Leasing Finance

GROWTH PARTNERS. Funding. Leasing Finance GROWTH PARTNERS Funding Leasing Finance Benefits More equipment is financed today by leases than by bank loans, private equity or any other method of asset financing. According to The American Association

More information

Box Credit, LLC Mill Valley, CA

Box Credit, LLC Mill Valley, CA Anders Norlin Mill Valley, CA Financing i of Storage Containers and related equipment Business Consulting Business Brokerage Founded 2001 by Tes and Anders Norlin 1 New Lease Accounting Standards What

More information

Patricia McConnell: Will the elimination of operating lease accounting improve financial reporting by lessees?

Patricia McConnell: Will the elimination of operating lease accounting improve financial reporting by lessees? Patricia McConnell: Will the elimination of operating lease accounting improve financial reporting by lessees? 24 June 2010 To address investors concerns about off-balance sheet assets and liabilities

More information

Accounting for Leases

Accounting for Leases CHAPTER 21 O BJECTIVES After reading this chapter, you will be able to: 1 Explain the advantages of leasing. 2 Understand key terms related to leasing. 3 Explain how to classify leases of personal property.

More information

The Insider s Guide to Leasing

The Insider s Guide to Leasing The Insider s Guide to Leasing Table of Contents 1 The Power of Leasing 2 The 11 Advantages of Leasing 4 Cash Flow & Credit 6 Upgrading & Adding Equipment 7 Tax & Reporting Advantages 8 The Three Types

More information

Chapter 9. Plant Assets. Determining the Cost of Plant Assets

Chapter 9. Plant Assets. Determining the Cost of Plant Assets Chapter 9 Plant Assets Plant Assets are also called fixed assets; property, plant and equipment; plant and equipment; long-term assets; operational assets; and long-lived assets. They are characterized

More information

CLASSIFICATION OF LEASES

CLASSIFICATION OF LEASES 284 Accounting Standard (AS) 19 Leases Contents OBJECTIVE SCOPE Paragraphs 1-2 DEFINITIONS 3-4 CLASSIFICATION OF LEASES 5-10 LEASES IN THE FINANCIAL STATEMENTS OF LESSEES 11-25 Finance Leases 11-22 Operating

More information

Leases. Chapter 12. Prepared By: Eman Al-Aqeel. Professor : Dr: Amal Fouda

Leases. Chapter 12. Prepared By: Eman Al-Aqeel. Professor : Dr: Amal Fouda King Saud University College of Administrative Science Department of Accounting 2 nd Semester, 1426-1427 Leases Chapter 12 Prepared By: Eman Al-Aqeel Professor : Dr: Amal Fouda Leasing is an alternative

More information

INCOME APPROACH Gross Income Estimate - $198,000 Vacancy and Rent Loss - $9,900

INCOME APPROACH Gross Income Estimate - $198,000 Vacancy and Rent Loss - $9,900 INCOME APPROACH The Income Approach considers the return on Investment and is similar to the method that investors typically use to make their investment decisions. It is most directly applicable to income

More information

Flexible and convenient equipment finance for your business. Expect nothing less.

Flexible and convenient equipment finance for your business. Expect nothing less. Equipment Finance equipment finance Flexible and convenient equipment finance for your business. Expect nothing less. Delphi Bank s flexible and convenient equipment finance solutions are a competitively

More information

5 Things To Know Before Signing Your Next Equipment Lease

5 Things To Know Before Signing Your Next Equipment Lease 5 Things To Know Before Signing Your Next Equipment Lease Helpful Information To Prepare You For The Equipment Leasing Process Whitepaper Brought to You By Balboa Capital Whether you are a newly launched

More information

Basics of Lease Pricing

Basics of Lease Pricing Basics of Lease Pricing 2014 ELFA Lease Accountants Conference Kathleen Walseth - U.S. Bank Equipment Finance Scott Thacker- Ivory Consulting Corporation 1 Disclaimer US Bankcorp and its affiliates and

More information

International Accounting Standard 17 (IAS 17): Leases

International Accounting Standard 17 (IAS 17): Leases International Accounting Standard 17 (IAS 17): Leases By PAUL YOUNG, CGA This article is part of a series on International Financial Reporting Standards published on PD Net. Introduction Accounting for

More information

I. GENERAL PROVISIONS KEY DEFINITIONS

I. GENERAL PROVISIONS KEY DEFINITIONS APPROVED by Resolution No. 1 of 18 December 2003 of the Standards Board of the Public Establishment the Institute of Accounting of the Republic of Lithuania 20 BUSINESS ACCOUNTING STANDARD OPERATING LEASE,

More information

CHAPTER 25. P.25.16 The following data are furnished by the Hypothetical Leasing Ltd (HLL):

CHAPTER 25. P.25.16 The following data are furnished by the Hypothetical Leasing Ltd (HLL): CHAPTER 25 Solved Problems P.25.16 The following data are furnished by the Hypothetical Leasing Ltd (HLL): Investment cost Rs 500 lakh Primary lease term 5 years Estimated residual value after the primary

More information

Construction Economics & Finance. Module 4 Lecture-1

Construction Economics & Finance. Module 4 Lecture-1 Construction Economics & Finance Module 4 Lecture-1 Equipment costs:- For construction firms, it is important to accurately estimate the equipment cost as part of the total cost of the construction project.

More information

How To Compare The Pros And Cons Of A Combine To A Lease Or Buy

How To Compare The Pros And Cons Of A Combine To A Lease Or Buy Leasing vs. Buying Farm Machinery Department of Agricultural Economics MF-2953 www.agmanager.info Machinery and equipment expense typically represents a major cost in agricultural production. Purchasing

More information

Acal plc. Accounting policies March 2006

Acal plc. Accounting policies March 2006 Acal plc Accounting policies March 2006 Basis of preparation The consolidated financial statements of Acal plc and all its subsidiaries have been prepared in accordance with International Financial Reporting

More information

Below is more information regarding these tax benefits available to you between now and the end of 2012.

Below is more information regarding these tax benefits available to you between now and the end of 2012. Acquiring new equipment between now and the end of 2012, you will be able to take advantage of the Section 179 and the Bonus 50% First Year depreciation deductions for 2012. In fact, Uncle Sam will be

More information

Leasing Decisions. 1. Leasing

Leasing Decisions. 1. Leasing 3 Leasing Decisions Learning Objectives After going through the chapter student shall be able to understand. Terms, types, advantages and disadvantages of Leasing. Financial evaluation of lease proposal

More information

Understanding the APOD How to Crunch the Numbers on Your Investment Transaction

Understanding the APOD How to Crunch the Numbers on Your Investment Transaction Understanding the APOD How to Crunch the Numbers on Your Investment Transaction Commercial Investment Education Alliance Commercial Success Series 105 1 Commercial Investment Education Alliance Please

More information

Anatomy of Aircraft Financing

Anatomy of Aircraft Financing Anatomy of Aircraft Financing Benoit Debains SVP Finance Airbus Emmanuel Feld Global Head of Aerospace and Shipping Finance Credit Agricole Indosuez Jean-francois Ginies Partner Ernst & Young Global Investors

More information

Asset Quality Section 219

Asset Quality Section 219 Leasing Activities A lease is a contract between the owner of a property, the lessor, and a person or company authorized by the lease contract, the lessee, to use the property. The lease contract specifies

More information

IFRS 16 Leases. A more transparent balance sheet. 13 January 2016. kpmg.com/ifrs

IFRS 16 Leases. A more transparent balance sheet. 13 January 2016. kpmg.com/ifrs IFRS 16 Leases A more transparent balance sheet 13 January 2016 kpmg.com/ifrs More transparent lease accounting IFRS 16 will bring most leases on-balance sheet from 2019. All companies that lease assets

More information

Short term leases, defined as a lease term of one year or less, are to be accounted for under the same operating lease method that currently exists.

Short term leases, defined as a lease term of one year or less, are to be accounted for under the same operating lease method that currently exists. Lease Accounting Updated January 2014 Page 1 Lease Accounting The pending changes in lease accounting have been a hot topic item since 2009, when the Financial Accounting Standards Board (FASB) and International

More information

Finance & Leasing Association. Why use Asset Finance?

Finance & Leasing Association. Why use Asset Finance? Finance & Leasing Association Why use Asset Finance? What is asset finance? Asset finance is a type of finance used by businesses to obtain the equipment they need to grow. It usually involves paying a

More information

Leasing and Factoring for SME Finance

Leasing and Factoring for SME Finance Leasing and Factoring for SME Finance ADBI Seminar on SME Finance May 2006 Yasuo IZUMI 1 The v iews expressed in this paper are the v iews of the author and do not necessarily reflect the views or policies

More information

Wells Fargo Equipment Finance. Juliana L. Lowe Vice President / Territory Manager 505 / 765-5269 May 12, 2016

Wells Fargo Equipment Finance. Juliana L. Lowe Vice President / Territory Manager 505 / 765-5269 May 12, 2016 Wells Fargo Equipment Finance Juliana L. Lowe Vice President / Territory Manager 505 / 765-5269 May 12, 2016 Industries and Equipment Sample List (HOWEVER not limited too) Industries and Equipment Core

More information

Intermediate Accounting

Intermediate Accounting Intermediate Accounting Thomas H. Beechy Schulich School of Business, York University Joan E. D. Conrod Faculty of Management, Dalhousie University PowerPoint slides by: Bruce W. MacLean, Faculty of Management,

More information

Agriculture & Business Management Notes...

Agriculture & Business Management Notes... Agriculture & Business Management Notes... Farm Machinery & Equipment -- Buy, Lease or Custom Hire Quick Notes... Selecting the best method to acquire machinery services presents a complex economic problem.

More information

finreporting.com free online financial services

finreporting.com free online financial services LEASE ACCOUNTING -LESSEE POLICY PERSPECTIVE A Lease is defined as an agreement conveying the right to use property, plant, or equipment (land and/or depreciable assets) for a stated period of time. This

More information

LEASES SCOPE/EXCLUSIONS

LEASES SCOPE/EXCLUSIONS LEASES SCOPE/EXCLUSIONS What is a lease? A lease is an agreement whereby the lessor conveys to the lessee in return for a payment or series of payments the right to use an asset for an agreed period of

More information

50-30-01 Equipment Leasing Nathan J. Muller

50-30-01 Equipment Leasing Nathan J. Muller 50-30-01 Equipment Leasing Nathan J. Muller Payoff Data communications managers today are responsible not only for selecting equipment, but also for recommending purchasing arrangements. Although contract

More information

Invoice Factoring Earn More Money Win More Sales Get More Customers Run Your Business More Effectively

Invoice Factoring Earn More Money Win More Sales Get More Customers Run Your Business More Effectively Invoice Factoring Earn More Money Win More Sales Get More Customers Run Your Business More Effectively Change Capital USA Tel: 954 399 1024 www.changecapitalusa.com INVOICE FACTORING WHAT IS IT? Invoice

More information

Institute of Chartered Accountant Ghana (ICAG) Paper 2.4 Financial Management

Institute of Chartered Accountant Ghana (ICAG) Paper 2.4 Financial Management Institute of Chartered Accountant Ghana (ICAG) Paper 2.4 Financial Management Final Mock Exam 1 Marking scheme and suggested solutions DO NOT TURN THIS PAGE UNTIL YOU HAVE COMPLETED THE MOCK EXAM ii Financial

More information

BSM Connection elearning Course

BSM Connection elearning Course BSM Connection elearning Course Basics of Medical Practice Finance: Part 2 2009, BSM Consulting All rights reserved. Table of Contents OVERVIEW... 1 PRACTICE PERFORMANCE RATIOS... 1 UNDERSTANDING THE CONCEPT

More information

418 Chapter 13 Leases

418 Chapter 13 Leases CHAPTER 13 Leases Business firms generally acquire property rights in long-term assets through purchases that are funded by internal sources or by externally borrowed funds. The accounting issues associated

More information

P1 Performance Operations September 2012 examination

P1 Performance Operations September 2012 examination Operational Level Paper P1 Performance Operations September 2012 examination Examiner s Answers Note: Some of the answers that follow are fuller and more comprehensive than would be expected from a well-prepared

More information

IF YOU THINK YOU WILL EVER NEED FINANCE, KEEP READING.

IF YOU THINK YOU WILL EVER NEED FINANCE, KEEP READING. CORPORATE OVERVIEW IF YOU THINK YOU WILL EVER NEED FINANCE, KEEP READING. Sherlock Asset Finance is a Joint Venture between AIB Network which was formed in June 1991& The Sherlock Group. Sherlock Asset

More information

A GUIDE ON FINANCIAL LEASING I. INTRODUCTION

A GUIDE ON FINANCIAL LEASING I. INTRODUCTION NATIONAL BANK OF SERBIA A GUIDE ON FINANCIAL LEASING I. INTRODUCTION The purpose of this Guide is to provide basic information on financial leasing as a way to finance purchase of equipment and other fixed

More information

Accounting Practice Questions

Accounting Practice Questions Accounting Practice Questions 1) The fundamental accounting equation states that: a) assets = liabilities + owner s equity b) assets = liabilities + drawings c) assets = liabilities + net income d) assets

More information

THE BENEFITS OF FINANCING

THE BENEFITS OF FINANCING THE BENEFITS OF FINANCING Haulotte Financial Services 1 THERE ARE PLENTY OF GOOD REASONS TO SELECT HAULOTTE FINANCIAL SERVICES Hold on to your cash In most cases, you can acquire the equipment you need

More information

The decision to buy, hire purchase or lease an asset will generally depend on the financing available to your business.

The decision to buy, hire purchase or lease an asset will generally depend on the financing available to your business. Buy, HP or Lease? The decision to buy, hire purchase or lease an asset will generally depend on the financing available to your business. There are different treatments for tax and accounting purposes,

More information

Studying Paper F7? Performance objectives 10 and 11 are relevant to this exam

Studying Paper F7? Performance objectives 10 and 11 are relevant to this exam RELEVANT TO ACCA QUALIFICATION PAPER F7 Studying Paper F7? Performance objectives 10 and 11 are relevant to this exam The accounting topic of leases is a popular Paper F7 exam area that could feature to

More information

Benefits of Leasing / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / /

Benefits of Leasing / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / Benefits of Leasing / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / Allied Specialty Capital s team of Transportation professionals offer proven industry experience wrapped around

More information

Advanced Merger Model Quick Reference Common Formulas & Model Setup. http://breakingintowallstreet.com. Transaction Structure & Assumptions

Advanced Merger Model Quick Reference Common Formulas & Model Setup. http://breakingintowallstreet.com. Transaction Structure & Assumptions Transaction Structure & Assumptions Equity Purchase Price = Diluted Shares Outstanding * Per Share Purchase Price For private companies, you don t have shares outstanding or share prices, so the equity

More information

RELEVANT TO ACCA QUALIFICATION PAPER F7 AND P2. Studying Paper F7 or P2? Performance objectives 10 and 11 are relevant to this exam

RELEVANT TO ACCA QUALIFICATION PAPER F7 AND P2. Studying Paper F7 or P2? Performance objectives 10 and 11 are relevant to this exam RELEVANT TO ACCA QUALIFICATION PAPER F7 AND P2 Studying Paper F7 or P2? Performance objectives 10 and 11 are relevant to this exam The IASB s Conceptual Framework for Financial Reporting I am from England,

More information

Accounting Principles Critical to Success Presented By: C. P. Krishnan. www.cakintl.com

Accounting Principles Critical to Success Presented By: C. P. Krishnan. www.cakintl.com Accounting Principles Critical to Success Presented By: C. P. Krishnan Basic Accounting You Need to Know Assets, Liabilities, Equity, Income, & Expenses Assets Includes what you have and what people owe

More information

LEASE VS. PURCHASE: A CRITICAL DECISION

LEASE VS. PURCHASE: A CRITICAL DECISION LEASE VS. PURCHASE: A CRITICAL DECISION Assessing options to make the best financial decision in an improving economy By Jud Snyder President BMO Harris Equipment Finance Company Published on 9.6.12 What

More information

Real Estate. Refinancing

Real Estate. Refinancing Introduction This Solutions Handbook has been designed to supplement the HP-2C Owner's Handbook by providing a variety of applications in the financial area. Programs and/or step-by-step keystroke procedures

More information

International Accounting Standard 39 Financial Instruments: Recognition and Measurement

International Accounting Standard 39 Financial Instruments: Recognition and Measurement EC staff consolidated version as of 18 February 2011 FOR INFORMATION PURPOSES ONLY International Accounting Standard 39 Financial Instruments: Recognition and Measurement Objective 1 The objective of this

More information

Consolidated Interim Earnings Report

Consolidated Interim Earnings Report Consolidated Interim Earnings Report For the Six Months Ended 30th September, 2003 23th Octorber, 2003 Hitachi Capital Corporation These financial statements were prepared for the interim earnings release

More information

Ratios and interpretation

Ratios and interpretation Unit Ratios and interpretation As we learnt in our earlier studies, accounting information is used to answer two key questions about a business: Is it making a profit? Are its assets sufficient to meet

More information

Cash Flow Finance. Factoring / Invoice Discounting

Cash Flow Finance. Factoring / Invoice Discounting Cash Flow Finance Factoring / Invoice Discounting definition: n (Business / Commerce) A method of obtaining finance from a third party lender on services or goods already delivered and invoiced, but not

More information

The Basics of Lease Accounting

The Basics of Lease Accounting The Basics of Lease Accounting Joe Sebik, VP - Global Originations & Structuring J. P. Morgan Leasing, Inc. (212) 899-1249 joseph.p.sebik@jpmorgan.com Howard Thompson, Director - Pricing & Economics Key

More information

AN INTRODUCTION TO REAL ESTATE INVESTMENT ANALYSIS: A TOOL KIT REFERENCE FOR PRIVATE INVESTORS

AN INTRODUCTION TO REAL ESTATE INVESTMENT ANALYSIS: A TOOL KIT REFERENCE FOR PRIVATE INVESTORS AN INTRODUCTION TO REAL ESTATE INVESTMENT ANALYSIS: A TOOL KIT REFERENCE FOR PRIVATE INVESTORS Phil Thompson Business Lawyer, Corporate Counsel www.thompsonlaw.ca Rules of thumb and financial analysis

More information

TERM LOANS AND LEASES

TERM LOANS AND LEASES TERM LOANS AND LEASES Virtually everyone has rented something at one time or another. With renting, just like owning, you get to use the asset. What distinguishes renting or leasing from owning is that

More information

Leases: Practical implications of the new Leases Standard

Leases: Practical implications of the new Leases Standard March 2015 Project Update Leases: Practical implications of the new Leases Standard Leases What is the purpose of this document? This document describes the IASB s lessee accounting model and compares

More information

International Accounting Standard 17 Leases

International Accounting Standard 17 Leases International Accounting Standard 17 Leases Objective 1 The objective of this Standard is to prescribe, for lessees and lessors, the appropriate accounting policies and disclosure to apply in relation

More information

Management Accounting Financial Strategy

Management Accounting Financial Strategy PAPER P9 Management Accounting Financial Strategy The Examiner provides a short study guide, for all candidates revising for this paper, to some first principles of finance and financial management Based

More information

Student Learning Outcomes

Student Learning Outcomes Chapter 15 Leases Part 2: Capital Leases Intermediate Accounting II Dr. Chula King Student Learning Outcomes Explain and use the criteria for determining whether a lease is capital or not Describe and

More information

Finance for your personal needs

Finance for your personal needs Finance for your personal needs Flexible finance from the Volkswagen specialists Choosing a new car is a very personal thing, and we think car finance should be just as personal. We re here to help you

More information

Management Guide to Asset Finance. A simple guide to help you select the most appropriate asset finance for your business.

Management Guide to Asset Finance. A simple guide to help you select the most appropriate asset finance for your business. Management Guide to Asset Finance A simple guide to help you select the most appropriate asset finance for your business. CONTENTS: Introduction 0.2 What s the best option for you? 0.3 Get the right solutions

More information

HARMONIC DRIVE SYSTEMS INC. AND CONSOLIDATED SUBSIDIARIES CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 2013

HARMONIC DRIVE SYSTEMS INC. AND CONSOLIDATED SUBSIDIARIES CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 2013 HARMONIC DRIVE SYSTEMS INC. AND CONSOLIDATED SUBSIDIARIES CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 2013 HARMONIC DRIVE SYSTEMS INC. AND CONSOLIDATED SUBSIDIARIES CONSOLIDATED BALANCE SHEETS ASSETS

More information

How To Choose Between Buying Or Leasing Business Equipment

How To Choose Between Buying Or Leasing Business Equipment IS BUYING OR LEASING EQUIPMENT 816-888-5303 www.capfusion.com 1 Table of contents Introduction 3 Leasing Equipment 4 Lower Initial Expenses 4 Tax Deductions 4 Flexibility 4 Avoiding Obsolescence 4 Drawbacks

More information