What is leasing objective?

Answer 1

What leasing does: A leasing company (the lessor) buys the asset (could be a property or equipment or vehicle or computer hardware) which its customer (the lessee) requires it. The customer hires the asset from the leasing company by paying a deposit plus recurring lease rentals over a specified lease term, for use of the asset.

In a finance lease, rental covers virtually all of the costs of the asset; lessor claims deduction for tax depreciation whilst the lessee could claim deduction of all the lease rentals in his taxable income, even as substantially all risks and reward incidental to ownership in the asset gets transferred to the lessee though title may not be transferred.

In an operating lease, lease doesn't run for the full life of the asset (usually equipment like aircraft or vehicles), lessee wouldn't be liable for the full cost of the value, lessor or the original manufacturer will assume residual risk

The leasing objective is a way of financing to use an asset by the lessee (the end-user) without actually having to buying the asset outright. Though buying is a good option if business has got funds or it is essential to own the equipment, but it is not always the best option because buying results upfront outflow of cash.

Instead of buying, leasing of equipment/asset for the business of the end-user allows such an entity (lessee) to use an asset over a fixed period by spreading the cash outflows over a longer period, in return of making regular lease rental payments.

In both types of leases, the lessee (hirer) ends up paying much more than paying upfront as for purchasing such an asset, because the lease payments include interest cost element plus principal on the capital employed by the leasing company (the lessor).