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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
