For those unfamiliar between Finance Lease and Operating Lease, tabulated below in summary some of the differences:
|
Finance Lease |
Operating Lease |
|
Lease period is normally related to the useful life of the asset |
Usually of a shorter duration and bears no relation to economic life of the assets. |
|
Is a non-revocable contract. |
Is a revocable one. |
|
The lessee has to bear the risk. |
The lessee is protected against risk of obsolescence |
|
Cost of maintainance repairs, taxes, insurance,etc is placed with the lesses unless the contract provides to the contrary |
The cost of maintainance,repairs, taxes, insurance,etc are all borne by the lessor. |
|
The lease rental would cover the lessor’s original investment cost plus a reasonable return on the investment. |
The lease rentals are generally not sufficient to fully amortize e cost of the asset. |
- An Example To Illustrate How To Classify A Lease As Finance Lease
- Sale And Leaseback-How To Determine whether it is A Finance Lease or Operating Lease And Accounting Treatment
- Accounting For Finance Lease
- Characteristic Of Finance Lease
- Accounting For Operating Lease
- Medium Term Financing- Hire Purchase and Leasing Facility (Part 1)
- What Is Meant by Asset-based Finance? What Are some of the differences between Asset-based finance and Cash Flow-based Loans/Finance
FCCA,CA(MIA)with more than 26 years of post-qualifying working experiences. Previous working stints with one of the big accounting four, Regional GFC & Group Treasurer in a group of Malaysian and Group CFO in Singapore public listed concern.
Also author to another very popular free educational accounting cum finance blog: http://basiccollegeaccounting.com under the branding of College Accounting Coach.
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