Question 4 OR (c)

Lease: meaning and four advantages

2 marks

Time to write
About 4 minutes

From an older CBCS paper

Question

Question 4 OR (c) · 2 marks

What is a Lease? State any four advantages of a lease. 2

Reworded from the university paper; the task is the same. The original paper belongs to the University of Delhi. See DU's question bank.

Before you write

Read off the question and its marks

4 minfor 2 marks

Read from the question

  • any fourThe paper asks for any 4, and this is one of them. Only 4 are marked: a fifth earns nothing.

Write it in this order

  1. 1 Meaning of lease 1 mark 1 min
  2. 2 Four advantages 1 mark 3 min

Easy marks

  • Meaning of lease (step 1, 1 mark): a definition in one or two lines. It opens the answer, so it takes a minute or two.

Short on time? Cut step 2 short rather than leave anything out.

Try it first. About 4 minutes for 2 marks. Write it out, then open the solution.

Solution

Hover or tap a marked figure, like 72,000, to see how it is made and where else it appears.

Lease. “A lease is an agreement whereby the lessor conveys to the lessee, in return for a payment or series of payments, the right to use an asset for an agreed period of time” (AS 19, para 3). The lessor owns the asset; the lessee uses it and pays lease rent.

Four advantages of leasing

  1. Saving of capital: the asset is used without paying its full price at once, freeing funds for working capital.
  2. Less formality: taking an asset on lease involves fewer formalities than borrowing from financial institutions.
  3. Guard against obsolescence: under an operating lease, in fast-changing technology the risk of the asset becoming obsolete stays with the lessor (under a finance lease it passes to the lessee with the other risks of ownership).
  4. Good for a new business, which can start operations with a smaller investment; the lessor may also give technical support.

Where the 2 marks sit

#ComponentMarks
1Meaning of lease1
2Four advantages1
Total2
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