Mr. Ganesh, a sole trader, acquired a machinery on a monthly rental ba

1.	Mr. Ganesh, a sole trader, acquired a machinery on a monthly rental basis from an outside agency. Identify the type of financial service in which he entered into. Explain it.
Answer» Lease Financing: A lease is a contractual agreement whereby the owner of an asset (lessor) grants the right to use the asset to the other party (lessee). The lessor charges a periodic payment for renting of an asset for some specified period called lease rent. Merits: 1. It enables the lessee to acquire the asset with a lower investment; 2. Lease rentals paid by the lessee are deductible for computing taxable profits; 3. It provides finance without diluting the ownership or control of business 4. The lease agreement does not affect the debt raising capacity of an enterprise; 5. Simple documentation makes it easier to finance assets. Limitations: 1. A lease arrangement may impose certain restrictions on the use of assets. 2. The normal business operations may be affected in case the lease is not renewed. 3. The lessee never becomes the owner of the asset.

Mr. Ganesh, a sole trader, acquired a machinery on a monthly rental basis from an outside agency. Identify the type of financial service in which he entered into. Explain it.

Answer»

Lease Financing:

A lease is a contractual agreement whereby the owner of an asset (lessor) grants the right to use the asset to the other party (lessee). The lessor charges a periodic payment for renting of an asset for some specified period called lease rent.

Merits:

1. It enables the lessee to acquire the asset with a lower investment;

2. Lease rentals paid by the lessee are deductible for computing taxable profits;

3. It provides finance without diluting the ownership or control of business

4. The lease agreement does not affect the debt raising capacity of an enterprise;

5. Simple documentation makes it easier to finance assets.

Limitations:

1. A lease arrangement may impose certain restrictions on the use of assets.

2. The normal business operations may be affected in case the lease is not renewed.

3. The lessee never becomes the owner of the asset.

Mr. Ganesh, a sole trader, acquired a machinery on a monthly rental basis from an outside agency. Identify the type of financial service in which he entered into. Explain it.

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