Financing Schemes

Flexible and Affordable Installment Plan

• Hire Purchase
• Finance Lease

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Advantages of Financing

Conserves Working Captial

• Does not have to tie up capital in low-yield fixed assets.
• Can channel these funds in more productive activities.

Budgeting

• Financing requires only minimun cash outlay and thereby enables you to acquire the use of the necessary equipment even if you are on tight budget.
• With GST, this advantage will be felt greater as any outright purchase requires an additional 7% of cash price equipment.

Accounting

• Hire Purchase: Hirer has to capitalise the equipment.
• Full cash price of the asset is charged to Hirer's fixed assets account.
• The fixed asset will depreciate and charge to the profit/loss account as provision of depreciation expense.
• Interest payments are charged to the profit/loss account as and when these become due and payable.

Finance Lease: Treatment same as Hire Purchase.

However, if the financed amount is sinificantly small (less than 5%-10% of Lessee's total assets), you may choose not to capitalise the equipment, thus leasing may mean a simplified entry in the customer's books. You do not have to apply various depreciation rates to a wide range of fixed assets.

Taxation

• Hire Purchase: Claims Capital Allowance on the cash price of the asset.
• Lease: Deductible Rental Expense on taxable profits.

Eliminating

• Replace outdated equipment thus maintaining efficiency.

Lessing of Inflationary Effect (paying less in real term compared to outright purchase)

Preserves Credit Position as lease commitments do not appear as a liability on the balance sheet.