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IIA CIA Exam
Certified Internal Auditor Exam (Page 46 )

Updated On: 12-Jan-2026
Page 46 of 342
PDF with 1702 Questions

Which of the following changes in accounting policies resulting from a significant change in the expected pattern of economic benefit will increase profit?

  1. A change from FIFO to LIFO inventory valuation when costs are rising.
  2. A change from FIFO to weighted-average inventory valuation when costs are falling.
  3. A change from accelerated to straight-line depreciation in the later years of the depreciable lives of the assets.
  4. A change from straight-line to accelerated depreciation in the early years of the depreciable lives of the assets.

Answer(s): B

Explanation:

According to IAS 16. Property, Plant, and Equipment, a change in depreciation method resulting from a significant change in the expected pattern benefits is accounted for as a change in estimate, that is. prospectively. In a period of falling cost=. FIF1 results in higher cost of goods sold than the weighted-average method. FIFO includes the higher, early in cost of goods sold, whereas the weighted-average method averages the later, lower costs with the higher, earlier costs. Thus, a change from FIFO to weighted-average costing reduces cost of goods sold and into !:3ses reported profit. An entity had the following account balances in the pre-closing trial balance:



An entity had 1.000 units of opening inventory that cost US $10 per unit On May 1. 1 .000 units were purchased at a cost of US $11 each. and on September 1 another 1.000 units were purchased at a cost of US $12 each. If 2.000 units were sold during the year. the company will report cost of goods sold of List A if the List B method of inventory valuation is used.

  1. Option A
  2. Option B
  3. Option C
  4. Option D

Answer(s): C

Explanation:

Under FIFO, the first items purchased are presumed to be the first sold. Given that 3, 000 units were available and 2.000 units were sold. FIFO cost of goods sold must have been US $21.000 [(1, 000 $10) BI T1, 000 $11) May 1 purchase].



Under IAS 2, Inventories. all of the following should be decided when reporting inventories except

  1. The use of the lower-of-cost-or-net-realizable-value method, if applicable.
  2. The cost formulas used.
  3. The carrying amount of inventories in classifications appropriate to the entire/.
  4. An estimated amount of obsolete inventory included in the total inventory valuation_

Answer(s): D

Explanation:

According to IAS 2, Inventories, disclosures about inventories include, for example. The accounting policies applied in measuring inventories. including the cost formulas used, total carrying amount; carrying amount for each classification appropriate to the entity. carrying amount of items carried at fair value minus costs to sell; amount of any reversal
of write downs as income; reasons for such a reversal; and carrying amount of inventory pledged as security. Thus. is, disclosures under IAS 2 include the carrying amount of inventories carried at NRV, not the amount of ate inventory.



An entity uses the retail method of inventory estimation for interim reporting purposes. Management expects some normal shrinkage in the inventory because of theft. What effect will the failure to consider this shrinkage have on the computation of1) the cost- retail ratio, and2) the estimated ending inventory at retail?

  1. Option A
  2. Option B
  3. Option C
  4. Option D

Answer(s): B

Explanation:

The retail method of inventory estimation applies a cost-retail ratio to the ending inventory at retail to determine ending inventory at cost For example, a popular method calculates the ratio as goods available for sale at cost divided by goods available at retail, with markups but not markdowns included in the calculation of the retail amount. Normal inventory is subtracted from the retail amount of goods available because are not available. However, abnormal amounts of theft, etc., are removed from the cost and retail amounts. The reason for the difference in treatment is that normal but not abnormal inventory losses are anticipated and included in the sellingretail value). Accordingly. failure to account for normal inventory shrinkage has no effect on the calculate , n , : rl the :_ost-retail ratio but overstates ending inventory at retail.



An entity is depreciating an asset with a 5-year useful life. It cost US $100, 000 and has no residual value. If the -List A - method is used, depreciation in the second year will be - List B>

  1. Option A
  2. Option B
  3. Option C
  4. Option D

Answer(s): D



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