 Generally, long-lived assets if required on a temporarily basis are acquired under a rental contract for a shorter period of time. But if these long-lived assets are required for permanent usage in the business, then these long-lived assets may be acquired under lease contracts. So we can say that lease is an alternative to buying a capital asset. Now what is lease? We can define lease as an agreement in which a person promises to make a series of periodic payments to another person in exchange of the rights of using a capital asset. In a lease contract, there are two different types of persons. The first person is the lesser. Lesser is a person who owns an asset and who gives the rights of using its assets to another person in exchange of a series of periodic payments. The second person is the lessy. Lessy is a person who agrees to make a series of periodic payments to the lesser in exchange of the rights received for using the asset owned by the lesser. We can classify lease contracts according to the nature of the usage of the asset. In this way we have operating lease and financial lease. The operating lease is relatively for a shorter period of time and it can be cancelled at any time by the lessy. So far as the financial or capital lease is concerned, according to financial accounting standard boards, certain parameters are there. If any lease contract holds any of the parameters, the lease will be termed as financial or capital lease. The parameters are transfer of ownership title to the lessy at the end of the lease contract. Existence of bargain purchase option in the contract given to the lessy. Lease term covering major part of the economic life of the asset and by major part is means at least 75% of the asset's economic life. The final is at the inception of the lease, the minimum lease payments of the lease contract should be equal to substantial part of the fair value of the asset. By substantial part means at least 90% of the fair value of the asset. This can also be classified some other ways like full service lease. In full service lease, the lesser promises to maintain and ensure the asset and to carry on any property taxes payable on that particular asset. Then we have financial at least in this type of lease, lessy agrees to maintain and operate the asset and he also agrees to pay any related taxes in this course of lease contract. Then we have leveraged leases. Under leveraged leases, these are a type of financial leases in such types of leases, lesser borrows certain part of a leased asset. As a purchase price using the leases contract as a collateral to the borrowing. We can classify a lease as a direct lease in where lessy identifies an asset in the particular market. Then the lessy approaches to the leasing company to have a lease contract, the leasing company buys the particular asset identified by the lessy and hands over the asset to the lessy under a lease contract. Sale and lease back. In sales and lease back contract, lessy at first sells its own asset to the leasing company and then gets it back under a lease contract for its own usage in the business. What is the difference between a lease and a borrowing contract? If we see financial lease, we can say that financial leases are the source of borrowing. These are a source of financing because in a lease contract lessy is relieved of paying full amount of cash to the lesser. So in this way, he can save a substantial amount of the purchase price of the asset, whereas under borrowing a user can borrow an amount equal to the or major part of the purchase price of the asset. He goes to a market, buys an asset and puts it under working in its business premises. Under both of the contracts, I mean a lease contract and a borrowing contract, the lesser and the borrower successfully save a certain portion of price in the form of cash savings. A question arises why leasing? There are certain benefits due to which a user finds it beneficial to go for an asset lease. First benefit is short-term leases are convenient. If the user of an asset finds it inconvenient or expensive to carry on a lease contract, it can cancel at any time during the lease term. Second option, generally a lease contract gives the buyer an option to cancel the lease contract. Under operating lease, the lesser agrees to provide maintenance of the asset throughout the lease term. Low administrative and transaction costs due to standardization. Generally a leasing company gets economies in designing lease contracts for a specific class of assets having similar attributes. In this way, the administrative cost of executing a lease contract becomes cheaper for the lesser. Take shields are offered to the lessy under the lease contract as the lease payments are subject to take shields. Then leasing and financial distress. In a lease contract, if a lessy feels difficult in repaying the lease installment and the matter goes to the court but if the court sees that the possession and working of the leased asset is essential to the business of the lessy, then the court may order to the execution of the lease contract in running. In this way, the lessy is bound to continue the lease payments to the lesser. Providing the alternative minimum taxes, it is a tax benefit that goes to the pocket of the lessy. In this way, the lessy can reduce its tax burden if he uses efficiently and carefully the benefit of tax shields. There are certain other reasons that make leasing an attractive choice for the lessy. First is the avoidance of capital expenditure control. Instead of buying a fully owned capital asset, the lessy can go for leasing an asset and operating it without much working and reporting problems. Leasing preserves capital. Whether we borrow funds for the purchase of a capital asset or we lease a capital asset under a lease contract, leasing say that it preserves the capital of the lessy in the form of savings in the cash outflows of balance sheet financing. If a lease contract allows to waive any of the conditions of financial lease set by a financial accounting standard board, then under those conditions, lessy uses the assets, updates the assets, make the lease payments, but the asset does not appear on the balance sheets of the lessy. It affects book income. Lease contract positively enhances the income of the lessy. It increases book return of the lessy because under off balance sheet items, the assets are understated and return of the firm when applied over the book value of the assets gives a higher value of return to the lessy.