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.
The impact of recording these lease obligations on the balance sheet can have multiple impacts, such as: businesses needing to alert their lenders as they will now be non-compliant with their loan covenants, negotiating new loan covenants with the lenders due to the restated financial statements, ratios used to evaluate a businesses potential of credit will be adversely impacted and the restatement of a lessee's financial statement once the change takes effect may result in a lower equity balance, and changes to various accounting ratios The conceptual basis for lease accounting would change from determining when "substantially all the benefits and risks of ownership" have been transferred, to recognizing "right to use" as an asset and apportioning assets (and obligations) between the lessee and the lessor.
For the cash evaluation, you must estimate what return you can generate by investing the cash in your business and compare to see which figure is higher. If the return on the cash investment is lower than the lease or loan cost and you have ample cash for your business needs, you should strongly considered buying the equipment with cash. Maintenance and supplies should be unaffected by the method of acquisition that you choose.
But you do have to be aware of and enquire thoroughly with the Lease Takeover Company regarding the costs of a Lease Takeover and the type of lease. You can also get many offers and incentives from the individual trying to get out of a lease. The Company will guide you on all procedures and paperwork involved in a Lease Transfer and getting the Car Lease transferred to your name. Almost all Lease Takeover and Lease Transfer Companies have websites where you can register and browse online for Vehicle/Cars in the listings for lease takeovers.
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.
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.
The impact of recording these lease obligations on the balance sheet can have multiple impacts, such as: businesses needing to alert their lenders as they will now be non-compliant with their loan covenants, negotiating new loan covenants with the lenders due to the restated financial statements, ratios used to evaluate a businesses potential of credit will be adversely impacted and the restatement of a lessee's financial statement once the change takes effect may result in a lower equity balance, and changes to various accounting ratios The conceptual basis for lease accounting would change from determining when "substantially all the benefits and risks of ownership" have been transferred, to recognizing "right to use" as an asset and apportioning assets (and obligations) between the lessee and the lessor.
For the cash evaluation, you must estimate what return you can generate by investing the cash in your business and compare to see which figure is higher. If the return on the cash investment is lower than the lease or loan cost and you have ample cash for your business needs, you should strongly considered buying the equipment with cash. Maintenance and supplies should be unaffected by the method of acquisition that you choose.
But you do have to be aware of and enquire thoroughly with the Lease Takeover Company regarding the costs of a Lease Takeover and the type of lease. You can also get many offers and incentives from the individual trying to get out of a lease. The Company will guide you on all procedures and paperwork involved in a Lease Transfer and getting the Car Lease transferred to your name. Almost all Lease Takeover and Lease Transfer Companies have websites where you can register and browse online for Vehicle/Cars in the listings for lease takeovers.
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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