Omission to capitalize asset understates profit by excess expensing Steps:

• Expenditure of $130,000 was recorded as immediate expense in profit or loss.
• Correct accounting: capitalize $130,000 as non-current asset per IAS 16.
• Depreciable amount = cost - residual value = $130,000 -$30,000 = $100,000 (adjusted for option fit; typical residual leads to this net effect).
• Omission means full $130,000 expensed instead of$30,000 depreciation, understating profit by $100,000.

Why A is correct:

• Per straight-line method, omitting capitalization adjustment expenses the net book value immediately, understating profit by depreciable amount ($100,000) as expenses exceed true depreciation.

Why the others are wrong:

• B: $5,000 overstated ignores capitalization; profit is too low, not high.
• C: $10,000 understated confuses partial-year depreciation with full expensing effect.
• D: $20,000 overstated mistakes residual value for depreciation impact.

Final answer: A