State whether each of the following statements is
True (T) or False (F)
(i) A lease is a temporary transfer of title of an asset in return
for a rental income.
(ii) Lease transactions in India are governed by the Lease Act.
(iii) Technically, the lessee becomes the owner of the asset or
the lease period.
(iv) Operating lease and Sale and lease-back are different
types of transactions.
(v) Sale and Lease-back and Leveraged lease are types of
finance lease.
(vi) Treatment of Operating lease in AS-19 is almost same as
required by tax laws in India.
(vii) As per AS-19, in case of Finance lease, the asset is shown
in the balance sheet of the lessee.
(viii) Lease financing is a type of capital budgeting decision
from the point of view of the lessee.
(ix) Tax-shield on depreciation and interest is an important
variable both for the lessor and the lessee.
(x) A lessee should evaluate the lease options as against the
buying option.
(xi) Net benefit of leasing is the NPV of lease option from the
point of view of lessor.
(xii) While evaluating lease as a source of long- term finance,
the lessee should give more emphasis on AS-19.
(xiii) Lease outflows should be discounted at the interest rate
to find out the present values.
(xiv) A Finance lease has more financial implications mar. in
Operating lease from the point of view or both ;he lessor and
the lessee.
[Answers (i) F, (ii) F, (in) F, (iv) T, (v) T, (vi) T, (vii)T,
(viii) F, (ix) T, (x) T, (xi) F, (xii) F, (xiii) F, (xiv) T]
Multiple Choice Questions – Lease
1. In lease system, interest is calculated on
(a)Cash down payment,(b)Cash price outstanding,(c)Hire purchase price,
(d)None of the above
2. A short-term lease which is often cancellable is known as
(a)Finance Lease,(b)Net Lease,(c)Operating Lease,(d)Leverage Lease
3. Which of the following is not a usual type of lease arrangement?
(a)Sale & leaseback,(b)Goods on Approval,(c)Leverage Lease,
(d)Direct Lease
4. Under income-tax provisions, depreciation on lease asset is allowed to
(a) Lessor,(b)Lessee (c) Any of the two, (d)None of the two
5. Under the provisions of AS-19 ‘Leases’, a leased asset is shown is the balance sheet of
(a)Manufacturer,(b)Lessor, (c)Lessee,(d) Financing bank
6. A lease which is generally not cancellable and covers full economic life of the asset is known as
(a) Sale and leaseback, (b)Operating Lease,(c)Finance Lease,
(d)Economic Lease
7.Lease which includes a third party (a lender) is known as
(a)Sale and leaseback,(b)Direct Lease,(c)Inverse Lease,(d) Leveraged Lease
8. One difference between Operating and Financial lease is:
(a)There is often an option to buy in operating lease.(b)There is often a call option in financial lease.(c)An operating lease is generally cancelable by lease.(d) A financial lease in generally cancellable by lease.
9. From the point of view of the lessee, a lease is a:
(a)Working capital decision,(b)Financing decision,(c)Buy or make decision,(d)Investment decision
10. For a lessor, a lease is a
(a)Investment decision,(b)Financing decision,(c)Dividend decision, (d)None of the above.
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11. Which of the following is not true for a “Lease decision for the lessee?
(a) Helps in project selection (b)Helps in project financing
(c)Helps in project location (d)All of the above.
[Answers 1. (b), 2. (c), 3. (b), 4. (a), 5. (c), 6. (c), 7.
(d),8(c), 9(b), 10. (a), 11. (b)]