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Office of the University Controller Indiana University

11.0 - Equipment Lease vs. Purchase

SUBJECT:

Equipment Lease vs. Purchase 

SOURCE:

Capital Asset Management and Office of Procurement Services 

ORIGINAL DATE

OF ISSUE:

 

May 2017

DATE OF

LAST REVISION:

 

August 2017

CSOP NO:

11.0 

RATIONALE:

This CSOP is specific to leases for equipment. It does not pertain to real estate or vehicle leases. It also does not pertain to lease agreements with a term of one year or less.

CSOP:

When departments want to procure equipment, the Office of   Procurement Services will present the available procurement options to the department. Departments should evaluate their procurement options to ensure that the university obtains the maximum value for each dollar of expenditure. To the extent possible, departments are encouraged to purchase the equipment with departmental funds due to the interest expense and high administrative overhead associated with leasing.

 

If leasing is an option, departments can use the Lease vs. Purchase Decision Tool to help them evaluate their procurement options. This tool calculates the present value of the funding options so different payment terms can easily be compared and evaluated.

 

The department will need to input the below information into the spreadsheet in order to conduct the analysis. If the department prefers, they can send this information to the Capital Asset Manager to conduct the analysis for them.

  • Description and quantity of equipment
  • Purchase cost
  • Lease terms - payment amount and frequency, interest rate, lease period, purchase option price, ownership at end of lease
  • Estimated resale price of equipment at termination of lease (best estimate)
  • Warranty or maintenance costs if amounts vary between purchase and lease options (Note: In most cases, copier/printers are covered by the same service agreement regardless if purchased or leased.)
  • Any other cash inflows/outflows associated with either option

If the analysis shows that leasing costs the department more money and departmental funds are not available, the Capital Asset Manager can assist the department in finding internal funding sources.

 

Options for other internal funding include:

  • RC and/or Campus (if the department has not already contacted them)
    •   
  • Bloomington Copy Machines Department
    • If departments on other campuses would like to consider using Bloomington Copy Machines Department, please contact your campus first.

If the department wants to pursue leasing the equipment, the above information must be sent to the Capital Asset Manager so they can evaluate if the lease should be classified as capital or operating. If it is a capital lease, the Capital Asset Manager will convert the amortization schedule into a .csv file. The department will use this file to upload the payment lines into the requisition.

 

DEFINITIONS:

Equipment lease -  a contract by which one party conveys equipment to another for a specified time, usually in return for a periodic payment 

CROSS

REFERENCES:

 

FIN-PURCH-01 Purchasing Authority

RESPONSIBLE

ORGANIZATION:

 

Organizations that purchase or lease equipment.