The Lessee pays the lease stream with an end of term $1.00 buy-out option. The purchase price is listed on the schedule. The asset cost is depreciated by the Lessee, not the Lessor. The transaction is treated as a financed purchase.
Fair Market Value (FMV)
The Lessee purchases the product for fair market value. The fair market value is typically listed as 10% of the original purchase price.¬† This type of lease is utilized when the Lessee wants to expense (not capitalize) the lease and comply with FASB 13, the “no bargain purchase price” rule for an end of term option. The asset cost is depreciated by the Lessor. The lease payments are an expense to the Lessee. The 10% purchase option gives the Lessee an excellent idea of the purchase option and provides an option of returning the asset to the Lessor.
True Lease (TL)
A true lease is when Lessee pays a lease stream and does not get any stipulated purchase option (although certainly may). PCM retains and holds a residual value to the device and also title at end of term. Lessee may convert this type Lease to a full payout or fair market value lease at any time during the Lease term or at the end of the Lease term. The Lessee may also purchase the product or simply renew the Lease at a renegotiated rate.
Understanding Leasing Advantages
Additional Source of Debt
Convenience Acquiring & Asset Tracking
Flexibility in Upgrades
No Book Depreciation Problem
No Salvage or Asset Disposal Problem
Use of Budgeted Expense Dollar vs. Capital Dollars
Leasing Agreement Choices
Master Equipment Lease
A Master Equipment Lease document describes and defines terms and conditions upon which parties agree. For example, describing passing of warranty to the Lessee, when and how payments are made, maintenance stipulations etc. The Master Equipment Lease establishes a basis for Lessor and Lessee. The Master Equipment Lease agreement does not expire except as otherwise provided therein. Unlike a Purchase Order or a Volume Purchase Agreement there is no specific time limit. The Master Equipment Lease has no monetary value, commitment, or amount. The Master Equipment Lease only sets up the ‚Äúrules‚Äù if you and we subsequently agree to enter into a Lease Schedule described below, and if you and we agree to accept a purchase order or plain letter referencing the terms of the master agreement for any vendors equipment.
PCM Lease Schedule governs PCM Master Equipment Lease. Lease Schedule is used to define specific terms, conditions, limitations, and exceptions of each lease agreement such as fixed term, fixed payment, and defines the leased item(s), insurance requirements, etc.
The Delivery And Acceptance Certificate (“Certificate”) is a document which proves the Lessee has received the agreed upon equipment. Likewise, the Certificate proves the Lessee is accepting the agreed-upon equipment and the agreed-upon equipment is installed and working correctly. The Certificate of Delivery and Acceptance is a “Trigger Document” to commence the Lease. The certificate binds the Lessee to all terms and conditions of Lease.
Review several of the crucial reasons why Law Firms, Sales Agencies, and other businesses prefer to acquire Hitachi Storage systems by and through a PCM Leasing Corp negotiated leasing agreement as follows: