Question

Abc ltd. generated one million canadian dollars in profits this year. abc ltd. decides to place 200,000 canadian dollars (20 percent of pre-tax profits) in a bonus pool. in previous years, this figure has ranged from zero to 50 percent of pre-tax profits. what type of formula is abc ltd. using to determine contributions into the pool?

a. fixed percentage
b. fixed threshold
c. discretionary
d. percentage approach

Answer 1

ABC Ltd. employs a discretionary approach to determine bonus pool contributions, as evidenced by the variable percentage of pre-tax profits allocated each year.

Step-by-step explanation:

ABC Ltd. is using a discretionary formula to determine contributions into the bonus pool. This approach is due to the percentage of pre-tax profits allocated ranging significantly from year to year — between zero and 50 percent. Since there is no specific fixed percentage or fixed threshold, and the contribution varies, it's clear that the decision on how much to allocate is made at the discretion of the company, hence the term discretionary.