Page 49 - Business_Studies_F5

Student's Book Form Five

lessee to the owner for the use of the assets. sized enterprises by enabling the business
For this case, the medium-sized businesses venture to acquire both cash and assets that
will be obtaining cash after leasing their are used for various business operations.
assets to other parties that will increase In this case, the business will continue
business finance. to use the assets either for production or
FOR ONLINE READING ONLY
Leasing of non-current assets does not other business activities. However, this
add the business debts; instead, it creates source of funding has some weaknesses
more access of finance needed for business like loss of ownership and control over
operation and expansion. In addition, the assets.
lease of non-current assets enables the
lessor to repossess the asset (s) that may Exercise 3.2
be productive to the business when the 1. Kichochi decided to leave his job as
lessee returns them after the agreed time. a sales manager of TX company to
However, leasing non-current assets is not start his own medium-sized business.
convenient to newly established businesses Explain the reasons why Kichochi
as they might not have redundant assets to might resort to seeking finance to set
lease. Another challenge is that the lessor up his new business enterprise.
temporarily loses the ownership and will 2. Suppose you own a business selling
have no control over the property until and distributing second-hand motor
the agreed period between the two parties vehicles within Dar es Salaam. Due
comes to an end. Again, leasing of non- to the good performance of your
current assets in business leads to wear business, you made a plan to expand
and tear which causes a shorter life span it by opening new branches outside
of those assets. the region, however, you do not

Sale and leaseback of non-current have enough capital to support your
assets initiative. Which sources of finance
Sale and leaseback of non-current assets would you use and why?
refers to the process whereby the asset 3. The TIE catering business has been
owner sells some of their assets to another operating for almost six years in
party then the assets are promptly leased Tanzania Institute of Education. The
back from the buyer. Periodic payments business owner intends to increase
(rental expenses) are made by the business capital by selling some of his assets.
entity to the owner for the use of an asset Explain to TIE’s catering owner
for an agreed time. Bearing of repair and or the management the benefits of
maintenance expenses depends on the using business profits as a source of
agreement between two parties involved. finance rather than selling some of
Sale and leaseback benefit to the medium- the assets.

Business Studies for Advanced Secondary Schools 40

30/06/2024 19:02:32
Business Studies FORM 5.indd 40 30/06/2024 19:02:32
Business Studies FORM 5.indd 40