Difference between Leasing and Hire Purchase
Difference
between Leasing and Hire Purchase
- Ownership: In Leasing it lies with the
finance company, the lessor and it is usually never transferred to the
lessee, the user. But in HP financing the property of the goods is
transferred to the hirer on the payment of last installment
- Depreciation: Lessor and not the Lessee is
entitled to claim depreciation tax shield in the Leasing. But in HP
financing the Hirer (owner) is entitled to claim depreciation tax shield.
- Capitalization: Capitalization of the asset
is done in the books of the Lessor, the leasing company. But in HP it is
done in the books of the Hirer.
- Payments: The entire lease payments are
eligible for tax computation in the books of the lessee. But in case of HP
only the hire-interest is eligible for tax computation in the books of the
hirer.
- Salvage
Value: The
lessor and the Lessee have the right to claim the benefit of salvage
value. But in HP only the hirer can claim the benefit of salvage value as
the prospective owner of the asset.
- Down
payment: No
Down payment is required for acquiring the use of leased assets. Down
payment is required to be made for acquiring the asset in case of HP.
- Maintenance
of asset:
Where the lessee has to maintain the leased asset in case of financial
lease, upkeep is the responsibility of the lessor in case of operating
lease. But in HP it is the hirer’s responsibility to ensure the
maintenance of the asset bought.
- Nature
of the asset:
An asset given on lease by a leasing company is considered as the fixed
asset of the lessor. But in HP the hire-vendor normally shows the asset
let under HP as stock in trade or as receivables.
- Receipts: All receipts from the lessee
are taken into the lessor’s profit and loss account. Only the interest
portion is taken into hire-vendor’s profit and loss account in case of HP.
- Reporting: In case of leasing leased
assets are disclosed by way of note forming parts of accounts. But in HP
the asset bought under HP will be shown as asset and the amount of
installments payable to the lessor as liability.
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