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IIA CIA Exam
Certified Internal Auditor Exam (Page 54 )

Updated On: 12-Jan-2026
Page 54 of 342
PDF with 1702 Questions

In making a cash flow analysis of property, plant, and equipmentPPE), the internal auditor discovered that depreciation expense for the period was US $10, 000. PPE with a cost of US $50, 000 and related accumulated depreciation of US $30, 000 was sold for a gain of US $1.000. If the carrying amount of PPE increased by US $80, 000 during the period, how much PPE was purchased this period?

  1. US $01.000
  2. US $100, 000
  3. US $110, 000
  4. US$119, 000

Answer(s): C

Explanation:

The carrying amount of the PPE account, net of accumulated deprecion, is increased by the cost of purchases and decreased by the carrying amount of items of PPE sold and depreciation.the net PPE decreased by the carrying amount of items sold, or US$20, 000($50, 000 cost-$30, 000 accumulated depreciation), and by the US$10, 000 of depreciation.if PE still increased byUS$80, 000, US$110, 000($30, 000 total decrease+$80, 000 increase)of equipment must have3 been purchased.



If an entity employs the sum-of-the-years'-digitsSYD) method of depreciation for an asset with an estimated useful life of 4 years, the percentage of the total depreciable cost that will be expensed in the third year is

  1. 10%
  2. 25%
  3. 20%
  4. 70%

Answer(s): C

Explanation:

Under the SYD method, the amount of the depreciable cost that is expensed each year is the remaining useful life at the beginning of that year divided by the sum of the years of useful life. For the third year, the portion expensed is 20% [2 .1 + 2 + 3 + 4)].



An entity sells a piece of machinery, for cash, prior to the end of its estimated useful life. The sale price is less than the carrying amount of the asset on the date of sale. The entry that the entity uses to record the sale is

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

Answer(s): A

Explanation:

The cash account is debited for the amount of the sale pro. .. ds_ The machinery account and the related accumulated depreciation account are eliminated by a credit and a debit. respectively. Because the sale price was less than the carrying amount of the asset ....n the date of sale, a loss on disposal should be recognized in profit or loss. The term "expenses" includes losses



A physical inventory count showed an entity had inventory costing US $1.000.000 on hand at December 31 Year 1 Excluded from this amount were the following:
· Goods costing US $82, 000. shipped to a customer free on boardFOB) shipping point on December 28. Year 1 They were expected to be received by the customer on January 4.
Year 2.
· Goods costing US $122.000. shipped to a customer free on boardF B) 1. ;ti nation December 30, Year 1 They were expected to be received by the customer on January 5, Year 2.
Compute the correct ending inventory to be reported on the shipper's balance sheet at December 31, Year I .

  1. US $1, 000, 000
  2. US $1, 082, 000
  3. US $1, 122, 000
  4. US $1, 204, 000

Answer(s): C

Explanation:

The goods shipped FOB shipping point should be counted in the buyer's, not the seller's, inventory because title and risk of loss pass at the time and place of shipment. These goods were properly excluded from ending inventory. The goods shipped FOB destination were improperly excluded form the seller's ending inventory. The title and risk of loss did not pass until the time and place where the goods reached their destination and were daily tendered. Thus, the correct ending inventor is US $1, 22, 000$1, 000, 000 beginning balance + 122, 000 good shipped FOB destination.



Plantation should treat Lease B as a(n)

  1. Finance lease with an initial asset amount of US $10, 960
  2. Finance lease with an initial asset value of US $10, 200.
  3. Operating lease. charging US $3, 500 in rental expense and US $500 in executory costs to annual operations.
  4. Finance lease with an initial asset value of US $9, 590.

Answer(s): D

Explanation:

A finance lease is one in which the risks and rewards of ownership are transferred to the lessee. For accounting purposes, the lessee treats a finance lease as similar to the purchase of an asset capitalized at the fair value of the leased asset or, if lower the present value of the minimum lease payments. The lessee's minimum lease payments include the required payments, excluding contingent rent and executory costse.g., taxes and insurance), plus any amounts guaranteed by the lessee or a related party. If a bargain purchase option exists, however, minimum lease payments equal the required payments plus the amount of the option. If the present value of the minimum lease paymentscalculated without guaranteed amounts or a bargain purchase option) is substantially all of the asset's fair value, the lease normally is accounted for as a finance lease. Given that the executory costs associated with the lease are to be paid by the lessor. a portion of the lease rental price is for those costs. not for the asset. Consequently. the annual minimum lease payment equals the annual payment minus the executory costs. or US $3, 500$4, 000 yearly rental - $500). The present value of the minimum lease payments is therefore US $9, 590 $3, 500 x 2.74), which is substantially all of the fair value of the asset. Thus. the lease should be capitalized. The appropriate amount of the initial asset value is the present value of the minimum lease payments calculated above.



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