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Non Banking Services - Coggle Diagram
Non Banking Services
Lease Financing Vs Hire Purchase
Ownership of the Asset
Depreciation
Rental Payments
Duration
Tax Impact
Repairs and Maintenance
The Extent of Finance
Hire Purchase
Features
written agreement
buyer takes possession
instalment = hire charges
Ownership transfers on payment of last installment
Purchaser has right to terminate agreement any time
Terms
Hire Purchaser
Hire Vendor
Cash Price
Hire Purchase Price
Instalment money
Down Payment
Hire Charge
Merits
Facility of buying
Savings
Higher Sales
Boon to small producers
Demerits
Extravagence
Higher Prices
Risks to Bad Debts
Large Investment
Hire Purchase vs Installment purchase
Nature of Contract
Passing of title
Return of Goods
Right of Seller
Right of disposal
Operating Lease vs Financial Lease
Ownership
Risk & Rewards
Purchase Option
Expense Bourne
Tax benefit to Lessee
Lease Financing
Types of Lease
i) Finance lease
a) gives lessee a right to use an asset
b) primary period lease rental charged is sufficient to recover his/her investment
c) lease rental for secondary period is much smaller (peppercorn rental)
d) Lessee responsible for asset maintenance
e) No asset-based risk and rewards is taken by lessor
f) non-cancellable; lessor’s investment is assured
ii) operating lease
a) Term < than economic life of asset
b) lessee has right to terminate lease - short notice and no penalty
c) lessor provides technical knowhow to lessee
d) Risks and rewards of ownership are borne by lessor
e) Lessor has to depend on leasing frequently for investment recovery
Advantages
Lessor
Assured Regular Income
Preservation of Ownership
Benefit of Tax
High Profitability
High Potentiality of Growth
Recovery of Investment
Lessee
Use of Capital Goods
Tax Benefits
Cheaper
Technical Assistance
Inflation Friendly
Ownership
Disadvantages
Lessor
Unprofitable in Case of Inflation
Greater Chance of Damage of Asset
Lessee
Compulsion
Ownership
Costly
Understatement of Asset