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Cost of Asset in lease term business
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[QUOTE="Yakub02, post: 310740, member: 94426"] The lessor knows that it needs to make sure to recover the cost of the asset together with any related interest during the lease term. The rentals are set at a level which allows it to do this. Therefore, the lessee will pay the full cash price of the asset together with related finance expense over the lease term. The lessee would only do this if it had access to the risks and benefits of ownership. In substance, this is just like borrowing the cash and buying the asset. Therefore, the lease is a finance lease. Specialised nature of the asset If the lessor includes this term in the lease the lessor knows that when the lease comes to an end it will be unable to lease the asset on to another party. Therefore the lessor knows that it needs to make sure to recover the cost of the asset together with any related interest during the lease term. The rentals are set at a level which allows it to do this. Therefore, the lessee will pay the full cash price of the asset together with related finance expense over the lease term The lessee would only do this if it had access to the risks and benefits of ownership. In substance, this is just like borrowing the cash and buying the asset. [/QUOTE]
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Cost of Asset in lease term business
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