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IIA CIA Exam
Certified Internal Auditor Exam (Page 49 )

Updated On: 12-Jan-2026
Page 49 of 342
PDF with 1702 Questions

When a perpetual inventory system is used and a difference exists between the perpetual inventory amount balance and the physical inventory count. a separate entry is needed to adjust the perpetual inventory amount. Which of the following demonstrates that adjusting entry?

  1. Inventory over and short
    Inventory
  2. Extraordinary loss due to write-down of inventory
    Inventory
  3. Extraordinary loss due to write-down of inventory Allowance for inventory shortages
  4. Cost of goods sold Retained earnings appropriated for shortages

Answer(s): A

Explanation:

The entry to record a write-down is a debit to inventory over and short and a credit to inventory_ This amount is reported as an adjustment of cost of goods sold or as an other expense on the income statement.



A merchandising company had the following inventory related transactions in its first year of operations:

If the company uses the first-in-first-outFIFO) method of inventory valuation, its ending inventory balancerounded) will be

  1. US $62, 000
  2. US $70, 759
  3. US $78, 750
  4. US $84, 000

Answer(s): C

Explanation:

The first-in-first-outFIFO) method assumes that the oldest units are used first and the newest units remain in inventory. Because the company has 12, 000 units remaining, ending inventory equals US $78, 750 [(5, 000 $7) +7, 000 $6.25)].



Which of the following is not an appropriat basis for measuring the cost of property, plant, and equipment?

  1. The purchase price, freight costs. and installation costs of a productive asset should be included in the asset's cost.
  2. Proceeds obtained in the process of readying land for its intended purpose, such as from the sale of cleared timber, should be recognized immediately as income.
  3. The costs of improvements to equipment incurred after its acquisition should be added to the asset's cost if they increase future service potential.
  4. All costs incurred in the construction of a plant building, from excavation to completion, should be considered as part of the asset's cost.

Answer(s): B

Explanation:

Accordingly, items of property, plant, and equipmentPPE) that meet the recognition criterion are initially measured at cost. The cost includes the purchase priceminus trade discounts and rebates. plus purchase taxes) and the directly attributable costs of bringing the assets to working condition for their intended use. DI r, rctly attributable costs include site preparation, installation, initial delivery and handling. architect and equipment fees, costs of removing the assets and restoring the site. etc. Accordingly, the cost of land includes the 5 'f obtaining the land and readying it for its intended uses. but it is inappropriate to recognize the pro, ' , , is n rated to site preparation immediately in profit or loss. They should be treated as reductions in the price of the land.



A depreciable asset has an estimated 20% residual value. At the end of the asset's estimated useful life. the accumulated depreciation will equal the original cost of the asset under which of the following depreciation methods?

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

Answer(s): D

Explanation:

At the end of the estimated useful life of a depreciable asset, the amount of accumulated depreciation should equal the depreciable costoriginal cost - estimated residual value). regardless of the depreciation method used. Periodic diminishing-balance depreciation is calculated without regard to residual value, but the asset is not depreciated below its residual value. The SYD method uses a depreciable base equal to cost minus residual value.



An entity donated land to a municipal for a park. cost of the land was US $75, 000, and the market value at the time of the donation was US $2, as determined by a professional appraisal. If the entity has not chosen to adopt the cost model for- n' r ant of property. plant, and equipment subsequent to initial recognition, the journal entry to record the dial."";itlmn _ of the land is

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

Answer(s): C

Explanation:

An item of PPE is carried at cost minus any accumulated depreciation and impairment losses. Under the allowed alternative treatment. an item of PPE may be carried at a revalued amount equal to fair value at the revaluation date minus any subsequent accumulated depreciation and impairment losses_ Land is not depreciated, so it should be carried at its r alued amount. This amount should be determined by a professional appraisal_ The revaluation increased the carrying amount and is therefore credited directly to equity a aluation surplus. Accordingly, the entry is to debit land and credit revaluation for US $125.000. The entire surplus may be transferred to retained earningsbut not through profit or loss) when the asset is derecognize d. Upon derecogni ti on. the asset should be removed from the balance sheet. and the resulting lossrevalued carrying amount of US $200.000 - 0 net disposal proceeds = US $200.000) should be included in profit or loss.



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