Introduction to Leases
Anil J N Shukla
Introduction to Leases
–What is a lease?
–Parties to a lease
–Why businesses choose to lease?
–Some lease terms
–Types of leases
–Classification criteria (for information only)
–Operating leases
–Finance leases
–Impact of lease type on lessee’s financial statement
Topics
2Anil J N Shukla
What is a Lease?
A contract granting use or occupation of property during a
specified period in exchange for a specified rent
an agreement whereby the lessor conveys to the
lessee in return for a payment or series of payments
the right to use an asset for an agreed period of
time
FRS 17
Property = Building, apartment, machines, cars etc.
3Anil J N Shukla
Parties to a Lease
Lessor
Lessee
–Legal owner of property
–Rents property &
collects lease rental
–User of property
–Pays rent for right to
use property
4Anil J N Shukla
Why do businesses choose to lease
(vs. buy/sell) assets?
Lessor
Lessee
–No down payment (save cash)
–Avoid risk of ownership i.e.
obsolescence, physical
deterioration
–Flexibility easily change
property in response to
business changes
–Increased sales: more
options for customers
–Ongoing business
relationship with lessee
–Residual value retained if
title does not pass at end of
Some Lease Terms
–Agreement between lessor and lessee allowing lessee to
use & enjoy asset for a period of time in exchange for
rental.
Lease Contract
–Contains details of
–Annual lease payment
–Length of lease
–Other terms and conditions
