Tag: sources of business finance - 2

Questions Related to sources of business finance - 2

Lease financing provides finance diluting the ownership or control of business.

commerce sources of business finance - 2 lease financing non-institutional sources - medium-term long term sources of finance public deposits

  1. True

  2. False

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Correct Option: B
Explanation:

Lease financing provides finance diluting the ownership or control of business.-this is a false statement as lease financing does not provide finance diluting the ownership of the business.Lease rentals paid by the lessee are deductible for computing taxable profits.

The normal business operations may be affected in case the lease is not renewed.

commerce sources of business finance - 2 lease financing non-institutional sources - medium-term long term sources of finance public deposits

  1. True

  2. False

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Correct Option: A
Explanation:

The normal business operations may be affected in case the lease is not renewed- this is a true statement. For using an asset, a contract has to be made between the leaser and the leasee, which is known as a lease.

Lease financing enables the lessee to acquire the asset with a ________ investment.

commerce sources of business finance - 2 lease financing non-institutional sources - medium-term long term sources of finance public deposits

  1. Higher

  2. Medium

  3. Lower

  4. Both a and b

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Correct Option: C
Explanation:

Lease financing in other words is renting of an asset for some specific period. The lessee pays a fixed periodic amount called lease rental to the lessor for the use of the asset. This enables the lessee to acquire  the assets with a lower investment.

While making the leasing decision, the cost of leasing an asset must be compared with the ________.

commerce sources of business finance - 2 lease financing non-institutional sources - medium-term long term sources of finance public deposits

  1. cost of owning the same

  2. cost of selling the same

  3. cost of renting the same

  4. none of the above

Show answer
Correct Option: A
Explanation:

While making the leasing decision, the cost of leasing an asset must be compared with the cost of owning the same.Lease financing does not provide finance diluting the ownership of the business.Lease rentals paid by the lessee are deductible for computing taxable profits.

The risk of obsolescence is borne by the _________.

commerce sources of business finance - 2 lease financing non-institutional sources - medium-term long term sources of finance public deposits

  1. Lessor

  2. Lessee

  3. Both a and b

  4. None of the above

Show answer
Correct Option: A
Explanation:
A lease is a contractual agreement where by one party i.e., the owner of an asset grants the other party the right to use the asset in return for a periodic payment. 
The owner of the assets is called the‘lessor’ while the party that uses the assets is known as the ‘lessee’. The risk of obsolescence is borne by the lesser.

The owner of the assets is called the _______ while the party that used the asset is known as the ________.

commerce sources of business finance - 2 lease financing non-institutional sources - medium-term long term sources of finance public deposits

  1. Lessor, lessee

  2. Lessee, lessor

  3. Trader, lessee

  4. None of the above

Show answer
Correct Option: A
Explanation:

In a lease agreement, the owner of the assets is 'lessor' and the party that uses the asset is known as 'lessee'. The lessee pays a fixed periodic amount known as the lease rent to the lessor for the use of the assets.

Simple documentation makes it easier to finance assets, is a ________ of lease financing.

commerce sources of business finance - 2 lease financing non-institutional sources - medium-term long term sources of finance public deposits

  1. Function

  2. Role

  3. Merit

  4. Limitation

Show answer
Correct Option: C
Explanation:

Lease financing in other words is renting of an asset for some specific period. The lessee pays a fixed periodic amount called lease rental to the lessor for the use of the asset. Therefore simple documentation makes it easier to finance assets and is a merit of lease financing.

_________ is deprived from the residual value of the asset.

commerce sources of business finance - 2 lease financing non-institutional sources - medium-term long term sources of finance public deposits

  1. Lessee

  2. Lessor

  3. Both a and b

  4. None of the above

Show answer
Correct Option: A
Explanation:

In a lease agreement, the owner of the assets is 'lessor' and the party that uses the asset is known as 'lessee'. The lessee pays a fixed periodic amount known as the lease rent to the lessor for the use of the assets. The lessee never becomes the owner of the assets, it is deprived from the residual value of the asset.

The lessee pays a _________ periodic amount called lease rental to the lessor for the use of the asset.

commerce sources of business finance - 2 lease financing non-institutional sources - medium-term long term sources of finance public deposits

  1. Fixed

  2. Fluctuating

  3. Both a and b

  4. None of the above

Show answer
Correct Option: A
Explanation:

Lease financing is a contractual agreement where by  the owner of the assets is 'lessor' that provides the grant to  the party to use the assets, who is known as 'lessee'. The lessee pays a fixed periodic amount known as the lease rent to the lessor for the use of the assets.

Which of the following is a merit of lease financing?

commerce sources of business finance - 2 lease financing non-institutional sources - medium-term long term sources of finance public deposits

  1. It enables the lessee to acquire the asset with a lower investment.

  2. The risk of obsolescence is borne by the lesser.

  3. The lease agreement does not affect the debt raising capacity of an enterprise

  4. All of the above

Show answer
Correct Option: D
Explanation:

Few merits of lease financing are: It enables the lessee to acquire the assets with low investment, the risk of obsolescence is borne by the lessor, the lease agreement does not affect the debt raising capacity of an enterprise.