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CA Intermediate · Financial Management and Strategic Management · Types of Financing

A company sells its fixed assets for ₹50 lakh to a finance company and immediately leases them back, paying periodic rentals while continuing to use the assets. Which source of finance is this?

This is sale and lease back. The company sells its own assets to a financier, receives cash immediately, and then leases the same assets back by paying rentals, so it keeps operating use of them while releasing funds tied up in fixed assets.

  1. ASale and lease backCorrect
  2. BHire purchase
  3. CFactoring
  4. DVenture capital

Explanation

In a sale and lease back arrangement, the owner sells an asset to a lessor and takes it back on lease. The firm gets cash from the sale and keeps using the asset. Hire purchase involves buying a new asset in instalments and does not involve a prior sale of the user's own asset.

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