Page 147 - Microsoft Word - 00 CIMA F1 Prelims STUDENT 2018.docx

Financing – Debt finance

3.2 Leasing

Lease

A lease is a commercial arrangement where an equipment owner
(the lessor) conveys the right to use the equipment in return for
payment by the equipment user (the lessee) of a specified rental
over a pre agreed period of time.

Finance lease Operating lease

A lease is classified as a finance A lease is classified as an operating

lease if it transfers substantially all lease if it does not transfer
the risks and rewards incidental to substantially all the risks and
ownership (IAS 17). rewards incidental to ownership
(IAS 17).
The term of the lease normally
extends over the full useful life of the These agreements will usually not
asset. The lessor therefore receives last for the full life of an asset. They
lease payments that will fully cover often incorporate maintenance and
the cost of the asset. The agreement other services. The lease can be
will usually not be cancellable and cancelled and the equipment
will not provide for any maintenance returned. Operating leases are
of the asset. The lessee effectively common for office and business
holds all the risks of asset ownership equipment, for example typewriters,
without being the legal owner. photocopiers, computers and motor

vehicles. The lessor will hope to

lease a particular asset several times
over its life.

139