1. A business purchased a motorcar 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 cashbook 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