From the following information, advice as to which shall be a better option, i.e., repair or replacement of machine: The cost of repair is ₹90,000 and the machine will work for 4 years. An expenditure of ₹18,00,000 shall

Comparative Statement Showing After Tax Profit From Different Alternatives Particulars Repair Amount (in ₹) Replacement Amount (in ₹) Annual Repairing expenses (Note 1) 22,500 - Depreciation on new machine (Note 2) - 1,72,800 Interest on ₹18,00,000 @ 15% p.a. - 2,70,000 Depreciation on old machine (Note 3) 30,000 - Total Expenses 52,500 4,42,800 Expected Profit 9,00,000 15,00,000 Less: Total Expenses (52,500) (4,42,800) Net profit before tax 8,47,500 10,57,200 Less: Income Tax @ 30.9% (Tax @ 30% + Cess & SHEC @ 2% & 1%) (2,61,878) (3,26,675) Profit After Tax 5,85,622 7,30,525 It is better to replace old machinery with a new one. Note: Annual Repairing expenses = ₹90,000 / 4 = ₹22,500 Depreciation on new machinery = (Cost – scrap value)/ life of asset = ₹(18,00,000 - 72,000)/10 = ₹1,72,800 Depreciation on old machinery = (Present value – sale value)/ balance life = ₹(1,50,000 - 30,000)/4 = ₹30,000