Class 12 Finance Chapter 14 Lease Finance

Class 12 Finance Chapter 14 Lease Finance Solutions English Medium As Per AHSEC New Syllabus to each chapter is provided in the list so that you can easily browse through different chapters ASSEB Class 12 Finance Chapter 14 Lease Finance Solutions in English and select need one. AHSEC Class 12 Finance Chapter 14 Lease Finance Solutions Download PDF. HS 2nd Year Finance Textual Solutions.

Class 12 Finance Chapter 14 Lease Finance

Also, you can read the NCERT book online in these sections Solutions by Expert Teachers as per Central Board of Secondary Education (CBSE) Book guidelines. ASSEB Class 12 Banking Question Answer are part of All Subject Solutions. Here we have given HS 2nd Year Finance Textual Solutions English Medium for All Chapters, You can practice these here.

Lease Finance

Chapter: 14

Unit – 4: Financial Services

A. Very Short Answer Questions:

1. Is finance lease a cancellable lease?

Ans: No.

2. Is operating lease a short-term lease?

Ans: Yes.

B. Short Answer Questions:

1. What is Lease?

Ans: A lease is a contract under which the owner of an asset (lessor) gives another person (lessee) the right to use the asset for a specified period in return for periodic lease rentals.

2. Who are the parties involved in a contract of lease?

Ans: The two parties involved in a lease contract are:

(i) Lessor.

(ii) Lessee.

3. What is a Finance Lease?

Ans: A finance lease is a long-term, non-cancellable lease in which the lessee uses the asset for most of its economic life and pays lease rentals to the lessor.

4. State two features of Finance Lease.

Ans: (i) It is a long-term and non-cancellable lease.

(ii) The lessee bears the maintenance, repair, and insurance costs of the asset.

5. What is Operating Lease?

Ans: An operating lease is a short-term and cancellable lease in which the lessor retains ownership and maintenance responsibility for the asset.

6. State two features of Operating Lease.

Ans: (i) It is a short-term and cancellable lease.

(ii) The lessor bears the maintenance and repair costs of the asset.

7. State two differences between Finance Lease and Operating Lease.

Ans:

Finance Lease	Operating Lease
(i) It is a long-term and non-cancellable lease.	(i) It is a short-term and cancellable lease.
(ii) The lessee bears maintenance and repair costs.	(ii) The lessor bears maintenance and repair costs.

8. Write two advantages of lease finance to the lessor.

Ans: (i) It provides a regular and fixed income in the form of lease rentals.

(ii) The ownership of the asset remains with the lessor.

9. Write two advantages of lease finance to the lessee.

Ans: (i) The lessee can use the asset without making a large initial investment.

(ii) It helps the business conserve working capital.

10. Write two disadvantages of lease finance to the lessor.

Ans: (i) There is a risk of default in payment of lease rentals by the lessee.

(ii) The lessor bears the risk of obsolescence of the asset after the lease period.

11. Write two disadvantages of lease finance to the lessee.

Ans: (i) The lessee does not become the owner of the asset.

(ii) The lessee has to pay lease rentals even if the asset is not fully utilized.

C. Long Answer Questions (Type-I):

1. Write five features of Finance Lease.

Ans: The features of a Finance Lease are:

(i) It is a long-term lease.

(ii) It is a non-cancellable lease.

(iii) The lessee bears the maintenance, repair, and insurance costs of the asset.

(iv) The lessor recovers the full cost of the asset along with profit through lease rentals.

(v) The lessee enjoys the use of the asset for most of its economic life.

2. Write five features of Operating Lease.

Ans: The features of an Operating Lease are:

(i) It is a short-term lease.

(ii) It is a cancellable lease.

(iii) The lessor bears the maintenance and repair costs of the asset.

(iv) The ownership of the asset remains with the lessor.

(v) The lease period is shorter than the economic life of the asset.

3. State five advantages of Lease Finance to the Lessor.

Ans: The advantages of lease finance to the lessor are:

(i) Regular and fixed income through lease rentals.

(ii) Ownership of the asset remains with the lessor.

(iii) Tax benefits such as depreciation can be claimed.

(iv) The asset can be leased again after the expiry of the lease period.

(v) Provides a profitable investment opportunity.

4. State five advantages of Lease Finance to the Lessee.

Ans: The advantages of lease finance to the lessee are:

(i) No large initial investment is required.

(ii) Helps conserve working capital.

(iii) Easy availability of modern equipment.

(iv) Lease rentals are generally treated as business expenses for tax purposes.

(v) Reduces the risk of obsolescence of assets.

5. Write the disadvantages of Lease Finance to the Lessor and the Lessee.

Ans: Disadvantages to the Lessor:

(i) Risk of default in payment of lease rentals.

(ii) Risk of obsolescence of the asset.

(iii) High initial investment is required.

(iv) Risk of damage or misuse of the asset by the lessee.

(v) Difficulty in finding another lessee after lease expiry.

Disadvantages to the Lessee:

(i) The lessee does not become the owner of the asset.

(ii) Lease rentals have to be paid regularly.

(iii) Long-term lease cannot be cancelled easily.

(iv) The total lease cost may be higher than purchasing the asset.

(v) The lessee cannot claim ownership-related benefits.

6. Write five differences between Finance Lease and Operating Lease.

Ans:

Finance Lease	Operating Lease
(i) It is a long-term lease.	(i) It is a short-term lease.
(ii) It is non-cancellable.	(ii) It is cancellable.
(iii) The lessee bears maintenance and repair costs.	(iii) The lessor bears maintenance and repair costs.
(iv) The lease period covers most of the economic life of the asset.	(iv) The lease period is shorter than the economic life of the asset.
(v) The risk and rewards of ownership are substantially transferred to the lessee.	(v) The risk and rewards of ownership remain with the lessor.

D. Long Answer Questions (Type-II):

1. What is Finance Lease and Operating Lease? Write the differences between Finance Lease and Operating Lease.

Ans: Finance Lease: A finance lease is a long-term, non-cancellable lease in which the lessee uses the asset for most of its economic life and pays lease rentals to the lessor.

Operating Lease: An operating lease is a short-term, cancellable lease in which the lessor retains ownership and maintenance responsibility for the asset.

Differences between Finance Lease and Operating Lease:

Finance Lease	Operating Lease
(i) It is a long-term lease.	(i) It is a short-term lease.
(ii) It is non-cancellable.	(ii) It is cancellable.
(iii) The lessee bears maintenance and repair costs.	(iii) The lessor bears maintenance and repair costs.
(iv) The lease period covers most of the economic life of the asset.	(iv) The lease period is shorter than the economic life of the asset.
(v) The risk and rewards of ownership are substantially transferred to the lessee.	(v) The risk and rewards of ownership remain with the lessor.

2. What is Finance Lease? State the features of Finance Lease.

Ans: A Finance Lease is a long-term, non-cancellable lease under which the lessee uses the asset for most of its economic life by paying lease rentals to the lessor.

Features of Finance Lease: