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Factors To Consider - Should I Lease Or Purchase?

By Frank Miller


The Financial Accounting Standards Board (FASB) on August, 17, 2010 released their "exposure draft" requiring companies to record nearly all leases on their balance sheets as a "right to use" asset, and a corresponding "future lease payment - liability". What does this mean to your business in layman terms? This proposal in essence does away with operating leases; all leases (unless immaterial) would be capitalized using the present value of the minimum lease payments. Therefore, businesses who in the past had off-balance sheet lease obligations, must now record these obligations on their balance sheet.

Another factor is what is the useful life of the equipment they are acquiring? If a company typically uses their equipment over a 3 year period and then upgrades to newer models, they probably would be better off leasing. For the last 10 years, 3 year lease rates have been very low and payments are very affordable compared to purchasing the equipment for cash or bank loan.

Lease Takeover and Lease Transfer Companies assist an individual to exit a Lease early by marketing the vehicle/car to lease buyers seeking a short-term lease transfer. Lease buyers can takeover a lease that fits their payment budget as well as select a lease term that fulfills their requirements.

A leased Vehicle/Car comes up for a Lease Takeover when someone has leased a vehicle/car, but is unable to continue paying the lease payments to the car leasing company. The biggest advantage of a Vehicle/Car Lease Takeover is the fact that you are taking over an existing lease and just have to get the Lease Transfer to your name. The individual forgoing the Lease has paid most of the initial down payments, monthly payments, and charges when leasing the vehicle/car, and you don't have to pay these fees again as it is not a fresh lease but a lease takeover.

Part of the purpose for this is to coordinate lease accounting standards with the International Accounting Standards Board (IASB), which sets accounting standards for Europe and many other countries. The IASB and FASB currently have substantial differences in their treatment of leases; particularly notable is that the "bright line" tests of FAS 13 (whether the lease term is 75% or more of the economic life, and whether the present value of the rents is 90% or more of the fair value) are not used by the IASB, which prefers a "facts and circumstances" approach that entails more judgment calls. Both, however, have the concept of capital (or finance) and operating leases, however the dividing line is drawn between such leases.

Make it a condition of earning the sale that the equipment vendor you are acquiring your new equipment from will help you return the old equipment (if leased). Ask the new equipment vendor to get 3 return shipping quotes (for the old equipment being returned) and make sure you have the right to see them and select the return shipping quote that best meets your needs. Always insure the equipment being returned (the leasing company will typically list a value in their "Return Authorization letter) so any damage can be the shipping carrier's problem and not yours. It is also a great idea to take digital pictures of the equipment just before it leaves your office. This way you can prove any damage to the equipment occurred after it was removed from your office.




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