Leasing as a source of fund for corporate entities

Project Abstract

Leasing has emerged as a popular and effective source of funding for corporate entities seeking to acquire assets without making substantial initial investments. This research project explores the various aspects of leasing as a financing option for businesses. The study delves into the different types of leases available to corporate entities, such as operating leases and finance leases, and analyzes the advantages and disadvantages of each. Furthermore, the research investigates the reasons why companies choose leasing over other traditional forms of financing, such as bank loans or equity financing. It examines the flexibility that leasing offers in terms of structuring lease agreements to meet the specific needs of the lessee. The study also explores the impact of leasing on the financial statements of companies, particularly in terms of leverage and liquidity. In addition, the research project evaluates the risks associated with leasing for corporate entities, including residual value risk, obsolescence risk, and lease term risk. It discusses strategies that companies can employ to mitigate these risks and make informed decisions when entering into lease agreements. The study also considers the accounting treatment of leases under the International Financial Reporting Standards (IFRS) and the Financial Accounting Standards Board (FASB) guidelines. Moreover, the research project examines the tax implications of leasing for corporate entities, comparing the tax benefits of leasing versus outright asset ownership. It discusses how tax considerations can influence the decision-making process for companies evaluating leasing as a financing option. The study also analyzes the impact of lease financing on the overall cost of capital for businesses and its implications for financial performance and shareholder value. Overall, this research project provides valuable insights into the role of leasing as a funding source for corporate entities. By exploring the various aspects of leasing, from types of leases to accounting treatment to tax implications, the study aims to help businesses make informed decisions about incorporating leasing into their financing strategies. Understanding the benefits, risks, and considerations associated with leasing can enable companies to optimize their capital structure and enhance their financial performance in the long run.

Project Overview

<p> </p><p><strong>1.1 Background To The Study</strong></p><p>Leasing is a contract existing between the lessee and the lessor in which the lessor offers equipment or property to the lessee for rent at an agreed installment payment over a given period of time. The lessor retains ownership while the lessee enjoys the benefit of using the equipment or property over the period. Leasing is specially contracted for the use of land and equipment and it is as old as modern civilization. The responsibility of maintaining the leased asset lies with the lessor Leasing Properties provides the access to assets required for productive ventures, and to boost economic growth and development –Olusoga (2004). It is suitable for the financing of fixed assets while equity is suitable for financing the use of permanent Asset for permanent operation without any threat of management/ownership, take over or dilution as well as the maintenance right balance in capital gearing structure-Owoeye (2004). Also leasing provided ease of exit when the period of the contract is due .The per capita income in Nigeria is low therefore it is difficult for entrepreneurs to accumulate fund for capital investment. This situation encourages the adoption of equipment leasing as alternative.</p><p><strong>Competitive Market:</strong>&nbsp;The lease market is more competitive and customer driven especially now that the lease business is being appreciated as a lucrative business. This is because of the combination of more knowledgeable and aggressive lessees with inexpensive analytical tools. Impersonal Lease Services: The growth in technology and equipment system has greatly impacted on the business to grow into larger scale organizations running leasing services. Changes in Lease Products: Most lease industries globally are not regulated. This spurs up market competition and quick adoption to evolving lease product mix in response to vagaries in environmental policies, Emergency of International Markets: Trade liberalization and increase in lease awareness and sophistication. Therefore the research seeks to investigate leasing as a source of fund for corporate entities (a case study of 7up bottling company plc)</p><p><strong>Statement of the Problem</strong></p><p>The adoption of lease as a source of fund is not without challenges especially in developing countries were leasing is not a very popular method of funding. Several problems include inadequacies in government policies which affects leasing contract in Nigeria; The Lack of social-political stability and security impedes on the development of leasing business. Lack of specialization and professionalism in the practice of leasing provides no standard measure of determining the effective and efficiency of the business. Inadequacy of legal and regulatory environmental frameworks for the protection of lessees and lessors in equipment lease exchange relationships; This also impedes on the motivation to run the business. The lease market is poorly funded, hence the high incidence of fraud and corruption-Fraudulent practices-The lessor imposed stringent conditions, and each desires and actually takes advantage of the other in pricing, distribution and positioning of the offer and in the consumption of the product. These behaviors that are fraudulent and prerogative affect the components of the leased asset .inability and unwillingness of government to address the negative impacts of the Statement of Accounting Standard II which denies lessees the right to claims on capital allowance. As a result leasing is considered expensive compared to outright acquisition of assets for productive activities-there is lack of quality legal and regulatory environment for the practice of leasing in Nigeria; hence activities in other sectors of the economy have direct negative impacts on leasing-Olusoga (2004). Instance of this is the fact that the judicial process in seeking redress for breach of lease obligations in Nigeria is cumbersome-Wright (2003), thus lessors have often lost their investments on equipment. The problem of inadequacy in pricing strategies and policies, poor promotional strategies and failure to appreciate the peculiar nature of the Nigeria lease service consumers and their behavior in lease market targeting and offer positioning. The Nigeria lease industry is more of the sellers’ market; the lessors impose stringent conditions on the lessees as exchange value for the derived benefits of the lease equipment at different periods in the life span of the equipment. As a result of this lessees are involved in different fraudulent activities to cushion the impact of high price of the lease services. The problem confronting the research therefore is to proffer an appraisal of leasing as a source of fund for corporate entities (a case study of 7up bottling company plc</p><p><strong>1.2 Objectives of the Study</strong></p><p>To proffer an appraisal of leasing as a source of fund for corporate entities (a case study of 7up bottling company plc)</p><p><strong>1.3 Research Questions</strong></p><p>What is the nature and role of leasing as a source of fund for corporate entities (a case study of 7up bottling company plc)</p><p>What is the role of leasing as a source of fund for 7up bottling company plc</p><p><strong>1.4 Significance of the Study</strong></p><p>The research shall proffer an appraisal of leasing as a source of fund for corporate entities (a case study of 7up bottling company plc)</p><p><strong>1.5 Research Hypothesis</strong></p><p>Ho The role of leasing as a source of fund for 7up bottling company plc. is not effective</p><p>Hi The role of leasing as a source of fund for 7up bottling company plc. is effective</p><p><strong>1.6 Scope of the Study</strong></p><p>The study focuses on the appraisal of leasing as a source of fund for corporate entities (a case study of 7up bottling company plc.)</p><p><strong>1.7 Limitations of the Study</strong></p><p>The study was confronted by some constraints including logistics and geographical factors.</p><p><strong>1.9 Definition of Terms</strong></p><p>Leasing is a contract existing between the lessee and the lessor in which the lessor offers equipment or property to the lessee for rent at an agreed installment payment over a given period of time. The lessor retains ownership while the lessee enjoys the benefit of using the equipment or property over the period.</p> <br><p></p>