Textbook Notes (369,067)
Canada (162,366)
Finance (37)
MGFC10H3 (13)
Derek Chau (13)
Chapter 22

Chapter 22 Notes

2 Pages

Course Code
Derek Chau

This preview shows 80% of the first page. Sign up to view the full 2 pages of the document.
Chapter 22 Leasing Noteslesseeone who receives the use of assets under a leaselessorone who conveys the use of assets under a lease221 Types of LeasesThe Basicsleasecontractual arrangement to grant use of specific fixed assets for specified time in exchange for payment usually in form of rent operating lease is a ST cancellable arrangement whereas a financial or capital lease is a LT noncancellable agreementdirect leaselease under which a lessor buys equipment from a manufacturer and leases it to a lesseesalestype leasearrangement whereby a firm leases its own equipment thereby competing with independent leasing companyOperating Leasesoperating leaseperiod of contract is less than the life of the equipment and the lessor pay alls maintenance and servicing coststhis form of leasing has several important characteristics1Operating leases are usually not fully amortized This means that the payments required under the terms of the lease are not enough to recover the full cost of the asset for the lessor This occurs because the term or life of the operating lease is usually less than the economic life of the asset Thus the lessor must expect to recover the costs of the asset by renewing the lease or by selling the asset for its residual value2Operating leases usually require the lessor to maintain and insure the leased assets3The cancellation option gives the lessee the right to cancel the lease contract before the expiration date If the option to cancel is exercised the lessee must return the equipment to the lessor The value of a cancellation clause depends on whether future technological andor economic conditions are likely to make the value of the asset to the lessee less than the value of the future lease payments under the leaseFinancial Leasesfinancial leaselongterm noncancellable lease generally requiring the lessee to pay all maintenance coststhe characteristics of a financial lease are1Financial leases do not provide for maintenance or service by the lessor2Financial leases are fully amortized3The lessee usually has a right to renew the lease on expiration4Financial leases cannot be cancelled In other words the lessee must make all payments or face the risk of bankruptcysale and leasebackan arrangement whereby a firm sells its existing assets to a financial company which then leases them
More Less
Unlock Document

Only 80% of the first page are available for preview. Some parts have been intentionally blurred.

Unlock Document
You're Reading a Preview

Unlock to view full version

Unlock Document

Log In


Join OneClass

Access over 10 million pages of study
documents for 1.3 million courses.

Sign up

Join to view


By registering, I agree to the Terms and Privacy Policies
Already have an account?
Just a few more details

So we can recommend you notes for your school.

Reset Password

Please enter below the email address you registered with and we will send you a link to reset your password.

Add your courses

Get notes from the top students in your class.