4) leases - 4) Leases What are Leases? IAS 17 Leases...

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4) Leases What are Leases? IAS 17 Leases defines a lease as: “A lease is an agreement whereby the lessor conveys to the lessee in return for a payment or series of payments, the right to use an asset for an agreed period of time.” Some leases give the lessee the option to purchase the asset at the end of the lease term or legal title of the asset may automatically pass to the lessee at the end of the lease term. Advantages of Leases 1. Cash flow management – If cash is used to purchase non-current assets, it is not available for the normal operating activities of a company 2. Conservation of capital – Lines of credit may be kept open and may be used for purposes where finance might not be available easily 3. Continuity – The lease agreement is itself a line of credit but unlike others, a lease agreement cannot be withdrawn or terminated very easily 4. Flexibility of the asset base – The asset base can be more easily expanded and contracted and the lease payments can also be structured to match the income pattern of the lessee 5. Off balance sheet financing – The use of leasing is a form of finance which does not appear on the balance sheet Finance vs. Operating Leases IAS 17 Leases distinguishes between two types of lease – finance and operating.
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4) leases - 4) Leases What are Leases? IAS 17 Leases...

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