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- Hire Purchase
- Finance Lease
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Does not have to tie up capital in low-yield fixed assets. |
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Can channel these funds in more productive activities. |
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Financing requires only minimun cash outlay and thereby enables you to acquire the use of the necessary equipment even if you are on tight budget. |
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With GST, this advantage will be felt greater as any outright purchase requires an additional 5% of cash price equipment. |
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Hire Purchase: Hirer has to capitalise the equipment. |
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Full cash price of the asset is charged to Hirer's fixed assets account. |
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The fixed asset will depreciate and charge to the profit/loss account as provision of depreciation expense. |
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Interest payments are charged to the profit/loss account as and when these become due and payable. |
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Finance Lease: Treatment same as Hire Purchase. |
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However, if the financed amount is sinificantly small (less than 5%-10% of Lessee's total assets), you may choose not to capitalise the equipment, thus leasing may mean a simplified entry in the customer's books. You do not have to apply various depreciation rates to a wide range of fixed assets. |
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Hire Purchase: Claims Capital Allowance on the cash price of the asset. |
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Lease: Deductible Rental Expense on taxable profits. |
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Replace outdated equipment thus maintaining efficiency. |
| Lessing of Inflationary Effect (paying less in real term compared to outright purchase) |
| Preserves Credit Position as lease commitments do not appear as a liability on the balance sheet. |
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Flexible and Affordable
