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It is an agreement between two parties. In India, land leasing was extensively prevalent during the ancient period. The equipment leasing was started in 1971 and with the establishment of the first Leasing Company Limited in Chennai. In 1948, the reserve bank of India permitted commercial banks to undertake leasing transaction through subsidiaries. In 1994, banks were permitted to undertake leasing transactions through a separate leasing division set up at their headquaters.

A contract between a lessor and lessee, for the hire of a specific asset, selected from a manufacturer or vendor of such an assets by the lessee. - European Leasing Association. Lease is a contract whereby the owner of the assets (lessor) grants to another party (lessee) the exclusive right to use the assets usually for an agreed period of time in return for the payment of rent. - James C. Van Horne.

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Two parties. A contract to hire a specific assets. The third party. Specification of assets by lessee. Payment by lessor. Useful possession with lessee. Payment of specified rent. Contract to be valid for a specific period. Ownership and user. Mode of termination.

Types of leases

Finance Lease Operating Lease

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Definition Provision for maintenance Risk of obsolescence Contract period Cancellation Examples Commitment Function

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Leveraged Lease. Full Pay Out Lease. Sale & Lease Back. Manufacturer Lease. Tripartite Lease. Single Investor Lease. Syndicated Lease. Master Lease. Big Ticket Lease.

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Sales-Aid Lease. International Lease. Import Lease. Export Lease. Domestic ease. Cross- Border Lease. Currency lease. Techno Lease. Dry Lease. Wet Lease. Consumer Lease. Balloon Lease.

To the Lessee:
Full financing Additional source of finance Improved cash flow Cheaper source of finance Off balance sheet financing Improved borrowing capacity Free from rating Tax benefits flexibility

Favorable terms Eliminates risk of obsolescence Conditionalities Simplicity Ownership unaffected

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Tax shields Full security High profitability Trading on equity Growth potential

To the lessee:
Deprival of ownership Restrictions on use Financial commitment Loss of residual value Consequences of default Understatement of Lessees assets Double sales tax Loss of incentives

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Loss of control Competition Tax burden Tax sharing

Lessor Purchase contact Payment of price Delivery manufacturer Lease rentals Right to use

Lease contract

lessee

Payment for maintenance

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Cost of assets= Rs. 100 Primary lease period= 5 years. Lessors pre tax cost of capital= 20%p.a. Lessors pre tax rate of return= 2.11%p.a.

Lease rental= 1000/2.86= 350


Year P.V. Factor Lease Rental 350.03 350.03 350.03 350.03 350.03 1750 Lease Rental P.V. factor 287 234.5 192.5 157.5 128.5 1000

1 2 3 4 5

.82 .67 .55 .45 .37 2.86

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