Problem
Some of the forklifts we use in the distribution centers will have to be replaced in the second quarter of the 2023 financial year, and we have to start thinking about it soon! We always purchased the forklifts outright from available cash resources or funded them by borrowing the required funding from the bank. We have recently learnt that many companies choose to lease their forklifts. These forklifts normally last a good ten years if we take good care of them. Prepare some relevant information that needs to be considered in a decision to lease or purchase?
Report on the following:
a) Different options in the market
b) Accounting treatment of the options
c) Tax implications of the options
d) Cost differentials and
e) Cash flow implications
What would the correct decision be for the company.