Leasing

ngAn Operating Lease is simply a rental agreement. You avoid the risks associated with ownership and have no residual value liability. At the end of your operating lease agreement you may simply return the vehicle and you owe nothing further which means no liability in terms of residual values or FBT for the company following the end of the lease. 

Advantages and disadvantages of buying and leasing options

Buying | Leasing |

Advantages | Disadvantages | Advantages | Disadvantages |

Outright asset ownership | Major capital outlay up-front. | Cash-flow effective method for gaining access to assets as no major capital outlay up-front. | No asset ownership. |

Assets can be modified at any stage to suit changing business requirements. | Entity incurs maintenance and repairs costs which typically increase as assets age. | Entity may not incur repair and maintenance costs as assets may fall under the warranty of the lessor over the term of the lease. | Assets may not be able to be modified to suit changing business requirements without lessor approval and attracting fees. |

Asset can be replaced or disposed of at any time. | Entity incurs costs for the replacement or disposal of assets at the end of their useful lives. | The entity may not incur costs associated with disposal and replacement of assets at the end of their useful lives. | Lease terms are generally fixed so asset replacements and early terminations at the request of the entity may attract penalties and fees. |

  |   | Assets may be replaced more frequently, allowing the entity access to latest technology for no additional cost. |   |

  |   | possible access to knowledge, purchasing power and discounts offered by the lessor. | Potential capital outlay at the end of the lease term if purchasing the asset at the end of the lease. |

Operating Lease VS Finance Lease:

1. While financial lease is a long term arrangement between the lessee (user of the asset) and the owner of the asset,...