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COMM 104 (26)
Lecture

Acquistion of Assets

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Department
Commerce
Course
COMM 104
Professor
Gordon Dueck
Semester
Fall

Description
The acquisition of assets - particularly expensive capital equipment - is a major commitment for many businesses. How that acquisition is funded requires careful planning. Rather than pay for the asset outright using cash, it can often make sense for businesses to look for ways of spreading the cost of acquiring an asset, to coincide with the timing of the revenue generated by the business.The most common sources of medium term finance for investment in capital assets are Hire Purchase and Leasing. Leasing and hire purchase are financial facilities which allow a business to use an asset over a fixed period, in return for regular payments. The business customer chooses the equipment it requires and the finance company buys it on behalf of the business. Many kinds of business asset are suitable for financing using hire purchase or leasing, including: - Plant and machinery - Business cars - Commercial vehicles - Agricultural equipment - Hotel equipment - Medical and dental equipment - Computers, including software packages -Office equipment Hire purchase With a hire purchase agreement, after all the payments have been made, the business customer becomes the owner of the equipment. This ownership transfer either automatically or on payment of an option to purchase fee. For tax purposes, from the beginning of the agreement the business customer is treated as the owner of the equipment and so can claim capital allowances. Capital allowances can be a significant tax incentive for businesses to invest in new plant and machinery or to upgrade information systems. Under a hire purchase agreement, the business customer is normally responsible for maintenance of the equipment. Leasing The fundamental characteristic of a lease is that ownership never passes to the business customer. Instead, the leasing company claims the capital allowances and passes some of the benefit on to the business customer, by way of reduced rental charges. The business customer can generally deduct the full cost of lease rentals from taxable income, as a trading expense. As with hire purchase, the business customer will normally be responsib
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