CA Intermediate · Financial Management and Strategic Management · Types of Financing
Sagar Textiles sells a machine costing ₹10,00,000 to a leasing company and leases it back, paying lease rentals for the use of the asset. Which term describes this arrangement?
The arrangement is a sale and leaseback: the firm sells an asset it already owns to a lessor and then leases it back, releasing funds while continuing to use the asset. In a direct lease the lessee does not previously own the asset.
- ASale and leasebackCorrect
- BDirect lease
- CFactoring
- DHire purchase
Explanation
In a sale and leaseback, the firm sells an owned asset to a lessor and takes it back on lease, freeing up cash while retaining use. Direct lease involves leasing an asset not previously owned by the lessee. Factoring concerns receivables, and hire purchase leads to ownership passing on the last installment.
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