The question of leasing equipment arises because of:
(a) Availability of funds
(b) The duration for which the equipment is required
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(c) The necessity of the organisation to obtain the equipment immediately (whereas purchase of new equipment may involve a lot of procedural and policy delay), and
(d) Capital equipment is available only on lease.
The major considerations of leasing as against purchasing capital equipment are:
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1. It may be very economical to lessee the equipment when it is needed for a relatively short period. On the other hand, since most leases are for definite terms and terminable on short notice, it may result in depriving the lessee of a needed facility.
2. In context of fast changing technology and obsolescence of equipment, leasing could avoid the purchase of a less efficient piece of equipment.
3. In general, in a lease the lessee bears the dismantling, loading and unloading charges and transportation expenses both ways, from lessors location to lessee’s and return, whereas in the purchase of new equipment, the equipment is generally sold at a delivered price.
4. The rent of leased equipment is an item of expense for tax purposes while the purchase price is an investment to be depreciated a number of years. That is, as long as lease payments exceed the value of allowable depreciation, and additional tax benefit is accrued.
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5. One of the most important disadvantages of leasing is that the lesser retains control of the equipment and not the lessee. The loss of ownership places certain restrictions in the manner in which the equipment is to be operated and it is obligatory on the part of the lessee that he allows the lessor access to the equipment for inspection at any point of time.