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IIA CIA Exam
Certified Internal Auditor Exam (Page 67 )

Updated On: 12-Jan-2026
Page 67 of 342
PDF with 1702 Questions

On January 1, Year 1. an entity purchased a machine for US $10, 000. The estimated useful life was 10 years, with no residual value. The entity depreciates its property, plant, and equipment using the straight-line method. On January 1. Year 5, it was estimated that the machine had a remaining useful life of 3 years. Compute the entity's Year 5 depreciation expense for the machine.

  1. US $1, 000
  2. US $2, 000
  3. US $3, 000
  4. US $6, 000

Answer(s): B

Explanation:

The machine's net carrying amount at January 1, Year 5, is US $6, 000$10, 000 cost ­ $4, 000 accumulated depreciation for4 years). A change in accounting estimate is applied prospectively. Thus, 'depreciation expense is US $2, 000 per year for the next 3 years.



Changes in accounting estimates are viewed as

  1. Extraordinary items.
  2. Errors in reported amounts in prior periods.
  3. Catch-up adjustments related to amounts reported in prior periods.
  4. Reassessments of current status and future benefits and obligations.

Answer(s): D

Explanation:

A change in accounting estimate adjusts the carrying amount of an asset or liability or the consumption of an asset. It results from reassessing the status and expected benefits and obligations related to assets and liabilities. It is based on new information and is not an error correction.



A sound justification for an entity's repurchase of its own sharese.g.. treasury shares) is to

  1. Lower the debt to equity ratio of the entity.
  2. Increase the entity's total assets.
  3. Reduce the idle cash and increase marketable securities.
  4. Meet the share availability needs of a potential merger.

Answer(s): D

Explanation:

An entity has many reasons to repurchase its own shares. These include meeting the needs created by potential mergers or pension and profit-sharing plans. Also, management may want to buy out a dissident shareholder. Sometimes, an entity has excess cash and can find no better investment than its own shares. Moreover, management may believe the shares are selling for a low price for no apparent reason. Thus, a purchase may not only be a good investment but may also support the market price of the shares.



Which of the following brings in additional capital to the entity?

  1. Two-for-one share split.
  2. Conversion of convertible bonds to ordinary shares
  3. Exercise of warrants.
  4. Exercise of options purchased through an option exchange

Answer(s): C

Explanation:

Warrants are options that permit the holder to buy shares for a stated price. Their exercise results in inflows and the issuance of shares.



Company M sold 1.000 treasury shares at US $33 per share. The shares had originally been issued at US $12 per share and had been repurchased at US $27 per share. The par value is US $5 per share. In the entry to record the reissuance using the cost method, what account should be credited?

  1. Retained earnings of US $6, 000
  2. Treasury shares of US $28, 000
  3. Paid-in capital in excess of par of US $28, 000.
  4. Share premium of US $6, 000.

Answer(s): D

Explanation:

Under the cost method. treasury shares are carried at cost. In this case, cost is US $27, 0001.000 shares x $27). The journal entry to record a sale at US $33 per share is



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