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CIPS L5M8 Exam - Topic 2 Question 15 Discussion

Graham manages a biscuit-making factory and requires a new piece of equipment. After having his budget approved as a capital-expenditure item, he has looked at different purchasing options. Graham has decided to use a method in which the asset is leased over two years and at the end of the two years the company has the opportunity to own the asset outright via payment of a balloon payment. What type of purchase is this?
A) hire purchase
B) finance lease
C) operating lease
D) asset loan

CIPS L5M8 Exam - Topic 2 Question 15 Discussion

Actual exam question for CIPS's L5M8 exam
Question #: 15
Topic #: 2
[All L5M8 Questions]

Graham manages a biscuit-making factory and requires a new piece of equipment. After having his budget approved as a capital-expenditure item, he has looked at different purchasing options. Graham has decided to use a method in which the asset is leased over two years and at the end of the two years the company has the opportunity to own the asset outright via payment of a balloon payment. What type of purchase is this?

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Suggested Answer: A

Hire purchase involves staged payments with an option to own the asset at the end (often via a final/balloon payment). Finance/operating leases don't necessarily transfer ownership.


Contribute your Thoughts:

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Ettie
8 hours ago
I feel like this is definitely not an asset loan since that usually involves borrowing money to buy the asset outright.
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Monte
6 days ago
I’m a bit confused because I thought an operating lease didn’t allow for ownership at the end, so it can't be that one, right?
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Jerlene
11 days ago
I remember practicing a question similar to this, and I think it might actually be a finance lease since there's a balloon payment involved at the end.
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Catarina
16 days ago
I think this sounds like a hire purchase because Graham can own the asset after the lease term, but I'm not completely sure.
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