(Learning Objective 1: Capitalizing versus expensing; measuring the effect of an error) All French Press (AFP) is a major French telecommunication conglomerate. Assume that early in year 1, AFP purchased equipment at a cost of €8 million. Management expects the equipment to remain in service for four years and estimated residual value to be negligible.

AFP uses the straight-line depreciation method. Through an accounting error, AFP expensed the entire cost of the equipment at the time of purchase. Because AFP is operated as a partnership, it pays no income tax.

❙ Requirements Prepare a schedule to show the overstatement or understatement in the following items at the end of each year over the four-year life of the equipment:

1. Total current assets 2. Equipment, net 3. Net income Quiz Test your understanding of accounting for PPE, natural resources, and intangibles by answering the following questions. Select the best choice from among the possible answers given.