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Text 3. The Historical Growth of the Leasing Industry.

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For the purpose of this paper two forms of leasing are described:

Hire purchase type finance (HP) - a traditional method of funding where the lessee eventually shall or may own the equipment on completion of the agreement. The lessor retains title until all installment payments have been made.

The asset is capitalized and shown on the balance sheet. This is very similar to the "Financial Lease" defined in the Ukraine legislation. Hire type finance (Lease)- in the UK there are three forms of Lease- the Finance Lease which is similar to HP except that the lessor retains title after payments are complete (not to be confused with the "Financial Lease" in Ukraine); the Operating Lease where the risks and rewards of ownership are substantially with the lessor and the lessee has only possession and utilization of the equipment for a fixed term; and the Contract Hire that is similar to the Operating Lease except maintenance services are often included during the fixed term. Lease rentals are charged to the profit and loss of the lessee without necessarily appearing on the balance sheet. These are all similar to the "Operating Lease" defined in the Ukraine legislation.

The practical application of HP and Lease agreements are to a large extent dictated by the tax and accounting environment. In the 1970's and 1980's finance companies with large amounts of taxable profit were able to take advantage of the 100 percent tax and allowance for investments in capital equipment. Smaller, less profitable companies were unable to utilize these incentives but could acquire the equipment through the banks and their finance houses who then passed on the benefits of the tax incentives. Thus the UK asset finance industry grew considerably at this time. Even when the incentives were gradually reduced, leasing still had the advantage that rentals were a tax deductible expenditure and considerable saving could be made by accelerating this expenditure.

Industrial companies have tended to be particularly concerned with the levels of profits that directly affect the shareholders. Therefore they tended to choose Lease rather than HP agreements, as their means of asset finance as such arrangements do not have to appear on the balance sheet and thus improve the performance ratios.

 

Vocabulary Notes:

 

basis of delivery - базис постачання

leasing -_лізинг

lessee – орендар

lessor - орендодавець

Hire type finance (Lease) - угода типу прокату (оренди)

Operating Lease - операційний лізинг

Contract Hire - прокат за контрактом

Lease rentals - суми орендної платні

hire purchase - купівля на виплат

retain title - зберігати право

tax and accounting environment - умови оподаткування та звітування

benefits of the tax incentives - вигоди податкових стимулів

performance ratios - показники ефективності

asset finance - фінансування операцій з активами.

 

 




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