ACCA Financial Management (F9) Certification Practice Exam

What is the function of leasing in financial management?

1. To fully purchase assets upfront

2. To finance operating expenses over time

3. To minimize taxation on capital assets

4. To provide access to assets without immediate full investment

The correct answer is: To provide access to assets without immediate full investment

The function of leasing in financial management primarily revolves around providing access to necessary assets without requiring an immediate full investment. Leasing allows businesses to acquire and use equipment, machinery, or property while spreading the cost over time through regular payments. This approach helps preserve capital, as companies do not need to make a large upfront payment to obtain the asset. Leasing can be particularly beneficial for businesses that may not have sufficient funds to purchase an asset outright or for those that prefer to allocate capital to other investment opportunities. Additionally, leasing can enhance cash flow management since it allows companies to use their resources more efficiently, spending less on initial payments and manageable ongoing expenses. This structure not only makes it more accessible for businesses to obtain needed assets but also aligns with operational needs, as many leases can be tailored to the terms of usage. Thus, leasing serves a crucial role in financial management by facilitating asset acquisition and improving financial flexibility. In contrast, the other options describe functions that are either misaligned with the core purpose of leasing or are more characteristic of different financial strategies. For instance, fully purchasing assets upfront does not align with leasing, which spreads costs over time. Financing operating expenses over time is more closely associated with other financial instruments rather than leasing, which primarily relates to asset acquisition