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IIA CIA Exam
Certified Internal Auditor Exam (Page 41 )

Updated On: 12-Jan-2026
Page 41 of 342
PDF with 1702 Questions

Which denominator used in the return on investment ROI) formula is criticized because it combines the effects of operating decisions made at one organizational level with financing decisions made at another organizational level?

  1. Total assets employed.
  2. Equity.
  3. Working capital plus other assets.
  4. Total assets available.

Answer(s): B

Explanation:

ROI equals income divided by invested capital. The denominator may be defined ink various ways, e.g., total assets available, assets employed, working capital plus other assets, and equity. If equity total assets -total liabilities) is chosen, a portion of long- term liabilities must be allocated to the investment center to determine the manager's
resource base. One problem with this definition of the resource base is that, although it has the advantage of emphasizing return to owners, it reflects decisions at different levels of the entity: short-term liabilities incurred by the responsibility center operating decisions) and long-term liabilities controlled at the corporate level long-term financing decisions).



Basic earnings per share for entity B. is approximately

  1. US $1 73
  2. US $1.87
  3. US $2.00
  4. US$227

Answer(s): A

Explanation:

BEPS equals profit minus preference dividends, divided by ordinary shares outstanding_ Thus. BEPS equals US $1_73 {[$150.000 - $2 x 10.000 preference shares)]
- 75.000 ordinary shares}.



An entity has 100.000 outstanding ordinary shares with a market value of US $20 per share. Dividends of US $2 per share were paid in the current year, and the entity has a dividend-payout ratio of 40%. The price-to-earnings ratio of the entity is

  1. 25
  2. 4
  3. 10
  4. 50

Answer(s): B

Explanation:

The P-E ratio equals the share price divided by EPS. If the dividends per share equaled US $2 and the dividend-payout ratio was 40%, EPS must have been US $5 $2 - .4). Accordingly, the P-E ratio is 4 US $20 share price - $5 EPS). Entity A has 50, 000 ordinary shares and 10, 000 preference shares outstanding at the start of the year on January 1. The preference shares are entitled to a US $2 per share annual cash dividend, payable on December 31. The entity had profit of US $1517, 000 for the year. On April 1, the entity issued 15, 000 additional ordinary shares for cash. Entity B. is identical to entity A in all respects except that it had 75.000 ordinary shares outstanding for the entire year.



The entity has a profit margin of

  1. 6.67%
  2. 13.33%
  3. 14.33%
  4. 46.67%

Answer(s): A

Explanation:

The profit margin is the ratio of profit to sales. It equals 6.67% US $200 profit $3, 000 sales).



The entity has return on assets of

  1. 21.1%
  2. 39.2%
  3. 42.1%
  4. 45.3%

Answer(s): A

Explanation:

The return on assets is the ratio of profit to total assets. It equals 21.1% US $200 profit $950 total assets). An entity's financial statements for the current year are presented below:



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