“You are required to critically evaluate the role and use of lease finance by the financial manager in funding and investment decision-making.”
This paper aims to discuss the role and use of lease finance by the financial manager in funding and investment decision making. The Paper will be split into for sections:
1. Evaluation of the development of leasing as a form of finance in the UK from the 1960’s to date, taking into account the extent to which tax advantages encourages businesses to use leasing for the financing of investment decisions.
2. Identify and discuss the key finical reporting issues related to leasing agreements, distinguishing clearly between a ‘finance lease’ and ‘an operating lease’ as per U.K. financial accounting standard SSAP 21 “ accounting for leases and hire purchase contracts.
3. Evaluate the investment aspects of the decision making process associated with the acquisition of new assets and the related lease financing decision, considering the non-tax reasons which might explain why a company would prefer to lease an asset rather than buy the asset outright.
4. Identify and use examples of current corporate practice to support your discussion, including an evaluation of the types of assets companies are more likely to use lease finance to acquire, drawing out logical conclusions on the use of lease finance for the financial manager.
1. Leasing is a type of short to medium term financing agreement which refers to hiring an asset under an agreed contract. The lessee is the company that is hiring the asset and conversely, the lessor is the company that owns the asset.
Leasing first became popular in the late nineteen sixty’s and early seventies when many companies in the UK were struggling to produce sufficient taxable profits due to relatively high levels of...