What are the different types of leases? An operating lease is implemented for s

What are the different types of leases?
An operating lease is implemented for short-term leases of assets with a limited lifespan. The asset under this type of agreement stays as the lessor’s property, while rent payments are paid by the lessee for its use throughout the term specified in the said contract (Li & Xu, 2022). The finance lease is a long-term lease that typically encompasses assets with an extensive lifespan. The responsibility for maintenance, insurance coverage, and taxes during this contractual arrangement falls under the purview of the lessee as they have been assigned these obligations. Upon termination of said contract, there exists within it an option to buy said asset at residual value dictated by certain conditions outlined in prior agreements. Sale and leaseback involve vending an asset to a leasing corporation, which is then leased again for a specific duration (Lee & McDonough, 2022). This leasing mode effectively generates finances while still retaining ownership over the property.
How can a lease be better than buying the item with capital?
In certain situations, leasing can prove superior to purchasing an item with available capital. Utilizing business access to the use of assets without requiring full payment upfront conserves cash flow. Additionally, such arrangements could offer tax benefits since lease payments are usually deductible as expenses under favorable conditions.
Suppose an organization needs new machinery that costs $100,000. They have two options: lease the machinery for five years or purchase it outright using a loan with an interest rate of 8% per year.
Option 1: Lease
Lease the machinery for a monthly payment of $2,000 for five years, with no residual value Total Lease Payments = $2,000 x 12 months x 5 years = $120,000
Option 2: Purchase
financial ratios (Gonzalez-Prida et al., 2022). Therefore, one must scrutinize how renting will affect their financial reports and overall fiscal stability.
References
LEASING VS RENTING 5
Running Head: LEASING VS RENTING 1
González-Prida, V., Parra, C., Kristjanpoller, F., Viveros, P., Guillén, A., & Crespo, A. (2022). Overview for Leasing or Buying Decisions in Industrial Asset Management. In 15th WCEAM Proceedings (pp. 115-125). Cham: Springer International Publishing.
https://link.springer.com/chapter/10.1007/978-3-03…
Lee, C. F., & McDonough, R. (2022). The economics of and accounting for lease transactions. Springer Books, 2019-2040.
https://ideas.repec.org/h/spr/sprchp/978-3-030-912…
Li, K., & Xu, Y. (2022). Leasing as Capital Reallocation. Available at SSRN 4226239.
https://papers.ssrn.com/sol3/papers.cfm?abstract_i…https://papers.ssrn.com/sol3/papers.cfm?abstract_i…
this was qoustion
Leasing Decisions
Businesses generally own fixed (capital) assets. However, it the ability to use buildings and equipment that is important to the business, not their ownership. One way to obtain the use of capital assets is to lease them.
Address the following requirements:
What are the different types of leases?
How can a lease be better than buying the item with capital?
What factors do you consider when evaluating a lease?