A business purchased a motor car on 1 July 2003 for $20,000. It is to be depreciated at 20 per cent per year on
the straight line basis, assuming a residual value at the end of five years of $4,000, with a proportionate depreciation
charge in the year of purchase.

The $20,000 cost was correctly entered in the cash book but posted to the debit of the motor vehicles repairs account.

How will the business profit for the year ended 31 December 2003 be affected by the error?

A     Understated by $18,400
B     Understated by $16,800
C     Understated by $18,000
D     Overstated by $18,400

A
20,000 minus 16,000 x 20%/2