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EQUIPMENT LEASING (Part 2) |
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Continued from part 1... |
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Lease Options |
- Purchase the equipment for either fair market value or nearly new equipment at a pre-determined discounted price.
- Renew the lease for a specific term if equipment has an extended life value.
- Return equipment and upgrade to a newer model and sign new lease.
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Accounting Advantages |
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A lease agreement provides flexibility to your financial presentation. An operating lease, will not appear on your balance sheet, positively impacting your balance sheet ratios. Some leases give you the option of treating the lease payments as operating expenses or capitalizing the asset and depreciating it. |
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Financial Considerations |
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Leasing has a considerable impact on cash flow. The lease amount can cover the full cost of the equipment, freeing up your cash for other purposes. Also, the lease term can be set up to cover the equipment’s useful life thus prolonging the repayment period and reducing the monthly payment amount. |
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Tax Benefits |
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For capital leases, tax benefits accrue to the lessee in the form of tax depreciation and interest expense that can be deducted from revenue. With operating leases, the monthly lease payments are considered a tax-deductible overhead expense. In some situations the operating lease can generate capital tax savings. |
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Read EQUIPMENT LEASING, Part 3 |
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