A mine operating company approaches an Islamic financial firm to obtain lease financing for some large and quite unique equipment. The financial firm is concerned it will not be able to sell the equipment at the end of the lease term. What form of financing should it propose?
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A mine operating company approaches an Islamic financial firm to obtain lease financing for some large and quite unique equipment. The financial firm is concerned it will not be able to sell the equipment at the end of the lease term. What form of financing should it propose?
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- Identify the incorrect statement concerning lease finance. A. Companies that are short of finance can use leasing as a source of assets B. Lease payments attract tax relief C. Interest payments attract tax relief D. Finance leasing allows companies to avoid the problem of obsolescence in cases where assets are subject to rapid technological change E. Empirical research has shown that many companies use an incorrect method when evaluating lease financeA lease is an agreement in which the lessor conveys the right to use an asset for an agreed period of time to the lessee in return for a payment or series of payments (IAS 17.4). Because of rapid changes in technologies, most of the production companies involve in the lease contracts rather than of purchasing new machineries. Being the accounting specialization student, how will you support this? Explain any three advantages of this contract with suitable examples.Lewis’s management has been considering moving to a new downtown location, and they are concerned that these plans may come to fruition prior to the equipment lease’s expiration. If the move occurs then Lewis would buy or lease an entirely new set of equipment, so management would like to include a cancelation clause in the lease contract. What effect would such a clause have on the riskiness of the lease from Lewis’s standpoint? From the lessor’s standpoint? If you were the lessor, would you insist on changing any of the other lease terms if a cancelation clause were added? Should the cancelation clause contain provisions similar to call premiums or any restrictive covenants and/or penalties of the type contained in bond indentures? Explain your answer.
- Able Equipment entered into an arrangement to provide M. T. Bin Wholesale’s data center with Able’s newest server model. Due to security processes in place for its customer data, M. T. Bin requires access to the equipment and the ability to direct its use. Able can replace or reconfigure the equipment if Able finds it’s financially advantageous to do so. Does the contract contain a lease?What would be the advantages and disadvantages of leasing assets instead of owning them? How would the financial statements be different in a leasing situation (for both operating leases and finance leases) for the lessee? What about the lessor (including all of the types)? What disclosures should be made by lessees and lessors related to future lease payments?Which of the following is/are good reason(s) for leasing? I. Taxes may be cancelled by leasing II. Leasing may increase certain types of certainty that might increase the value of the firm. III. Transaction costs will cease to exist for a lease contract than for buying the asset IV. Leasing facilitates the management of the firm's cash flows. V. Leasing provides 100 percent financing whereas loans require an initial down payment. Select one: a. I and III only b. IV only c. III only d. I and IV only e. I, III, and IV only
- How do you treat repair and maintenance costs in lease versus purchass decision? Fewa's management has been considering moving to a new downtown location and they are concerned that these plans may come to fruition prior to the expiration of the lease. If the move occurs, Fewa would buy or lease an entirely new set of equipment, and hence management would like to include a cancellation clause in the lease contract. What impact would such a clause have on the riskiness of the lease from Fewa's standpoint? From the lessor's standpoint? If you were the lessor, would you insist on changing any of the lease terms if a cancellation clause were added?There are two parties in any lease contract—the lessee and the lessor. To a lessor, a lease analysis involves a capital budgeting analysis of the property or equipment to be leased. The lessor’s decision is either to purchase and lease-out the asset, or not make the investment at all. Like any capital budgeting decision, the lessor needs to evaluate the rate of return expected to be earned from making the lease. Further, since the cost and other terms of leases involving high-cost items are negotiated, this rate of return information is also important information for a prospective lessee. From the following statements, identify the steps involved in lease analysis from a lessor’s perspective. Check all that apply. Determine the lease payments minus income taxes and any maintenance expenses that the lessor must incur as per the lease agreement. Determine the invoice price of the leased equipment minus any lease payments made in advance. Determine the periodic…the Fewa's management has been considering moving to a new downtown location. and they are concerned that these plans may come to fruition prior to the expiration of the lease. If the move occurs, Fewa would buy or lease an entirely new set of equipment, and hence management would like to include a cancellation clause in the lease contract. What impact would such a clause have on the riskiness of the lease from Fewa's standpoint? From the lessor's standpoint? If you were the lessor, would you insist on changing any of the lease terms if a cancellation clause were added?
- It is the risk of a possible future change in one or more of a specified interest rate, financial instrument price, commodity price, foreign exchange rate, index of prices or rates, credit rating or credit index or other variable, provided in the case of a non-financial variable that the variable is not specific to a party to the contract. Insurance risk Financial risk Operating risk Credit risk You are a business manager. During the period, you have authorized the acquisition of a machine that will be used in your company’s manufacturing activities in the next 5 years. In your selection of an appropriate accounting policy for the recognition and measurement of the machine, which of the following reporting standards is most relevant? PAS 1 PAS 2 PAS 16 PAS 32 Under current standards, a subsequent expenditure on an item of property, plant and equipment is most likely to be capitalized to the asset account. debited to the related accumulated…Which of the following typically represents an advantage of leasing over purchasing an asset with an installment note? a. Lease payments often are lower than installment payments.b. Leasing generally requires less cash upfront.c. Leasing typically offers greater flexibility and lower costs in disposing of an asset.d. All of the above are advantages of leasing.Which of the following is/are good reason(s) for leasing? I. Taxes may be cancelled by leasing II. Leasing may increase certain types of certainty that might increase the value of the firm. II. buying the asset Transaction costs will cease to exist for a lease contract than for IV. Leasing facilitates the management of the firm's cash flows. V. Leasing provides 100 percent financing whereas loans require an initial down payment. Select one: O a. IV only O b. I and IV only Oc. I and II only O d. II only O e. I, II, and IV only
