When Is It Not Appropriate to Use an Encumbrance System

question 21

Multiple Choice

When is it not appropriate to use an encumbrance system?

• A)When there is a significant lag between purchase orders and the receipt of goods
• B)When reporting is done on an expenditure basis
• C)When only a small part of expenditures for goods and services are discretionary
• D)When commitments and expenditures are made on a decentralized basis

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Definitions:

Operation

In a business context, operation refers to the day-to-day activities necessary for running a company, which can include production, distribution, and the provision of services.

CCA Deductions

Refers to Capital Cost Allowance deductions in taxation, allowing businesses to claim depreciation on tangible capital assets.

CCA Tax Shield

Refers to the decrease in taxable income for businesses in Canada due to Capital Cost Allowance, which allows for the depreciation of tangible property to be deducted from taxable income.

Terminated Project

A project that has been ended prior to its completion due to various reasons such as feasibility, costs, or changes in strategy.