Textbook Problem

List four potential benefits to the lessee of leasing versus purchasing an asset.

To determine

State four potential benefits to the lessee of leasing versus purchasing an asset.

Explanation of Solution

Lease: Lease is a contractual agreement whereby the right to use an asset for a particular period of time is provided by the owner of the asset to the user of the asset. The owner, who possesses the asset, is termed as ‘Lessor’ and user, to whom the right is transferred to, is termed as ‘Lessee’.

State four potential benefits to the lessee of leasing versus purchasing an asset:

The four potential benefits of the lessee include the following benefits:

1. Strategic benefits: Leasing the assets will be cheaper as compared with the purchase of assets.

2. Risk benefits: Leasing the asset will reduce the risk of obsolescence of an asset for the lessee.

3. Financing benefits: In some cases, for leasing the asset, the lessee will get 100% finance. Thus, the lessee will acquire the asset by making a lower down payment. Sometimes for leasing, the interest rate will be lower than the loan interest rates.

4. Tax benefits: The lessee can deduct the lease payments and can write off full cost of the asset. It will results in lower taxable income.