Cheap Bargain Purchase

What is a Bargain Purchase?

Speaking in business terms, the jargon called as bargain purchase means acquiring a financial or monetary asset at a price which is much lower than the actual market value of that object.  A cheap bargain purchase signifies a good deal from the buyer’s perspective since he gains a lot from the purchase and deal. This kind of a purchase or acquisition usually happens in a lease agreement where one acquires a corporate entity or object in a lesser amount than what it actually is worth of concerning the current market value of the entity taking into consideration all its net assets.

Mostly used by the business tycoons and millionaires who are in a lookout to avail the opportunity to acquire a financial gain through these deals and leases, a cheap bargain purchase benefits the acquirer in more than one way! There are certain rules which govern such acquisitions and achievements based on accounting terms and rules; such as there is a rule which ask the acquirer of the asset to provide the total gain he has acquired and the difference to be listed between the actual market value of the asset and the price at which he purchased it. This property or rule provides an economic boost to the equity of the acquirer.

Also know bargain purchasing options:

To understand a cheap bargain purchase, the understanding of the term bargain purchase options is also equally necessary. Bargain purchase options are very important in the lease agreements if you want to make a bargain purchase. A bargain purchase can only be made if there is an option in the lease letter of bargain purchase, which will allow the lessee to purchase the entity at rates relatively lower than its actual market worth. Only if the agreement has this bargain purchase option, the lessee is eligible to make such a Cheap Bargain Purchase.

It is a condition, out of the four necessary conditions, that, if satisfied, will classify the entity or lease as a financial lease and hence the disclosure of such bargain purchase must be made on the acquirer’s balance sheet. Such a condition is necessary to avoid illegal and off sheet financing acquired by the lessee. Let us understand this concept with the help of an example. Suppose that the net worth of a financial asset is predicted to be around 50,000 dollars at the ending of the period of lease agreement, but the agreement has the bargain purchasing option to avail and acquire the asset in less than 10,000 dollars. This is hence a bargain purchasing option and can be availed in the form of a corporate lease.

Advantages:

Certainly acquiring a financial asset in much lesser worth is a boon and benefit in itself, not to forget the value it is actually worth of. But by making a Cheap Bargain Purchase, the lessee gets the spectacular option to acquire a corporate lease in such lesser values. All you need to do is show your gains in a balance sheet!