Treasury Management - Consolidation of Accounts

Question 1

What is consolidation of Account?

Answer 1

You have to take all the balances of all the accounts within your group, and you calculate the net position. And you say, this is the net for company, or within the structure

Question 2

What is SLE (Single legal entity) ?

Answer 2

all the accounts, like your donut example, belong to the same company. So if company is in the Plus we’re paying you interest it’s negative we’re charging you overdraft period. ***You can put all your accounts in here, except if an account is labeled a trust account b/c the money belongs to someone else.. **

Question 3

What is Notional pooling?

Answer 3

The aggregated balances of companies in a group without movement of funds. It is basically a mechanism for calculating interest on the combined credit and debit balances of accounts.
USA= forbidden
Canada=not offered by most financial institution
Europe= common practice

Question 4

What is MLE (Multipe legal entity)?

Answer 4

Group of companies that are related with each other and wish to consolidate their balances.
Conditions:
-The incorporation of each entity should allow such consolidation.
-The ownership of each entity has to be 100%
-no trust company or account.

Question 5

What is consolidation of MLE?

Answer 5

Let’s assume here there’s $200 here there’s minus 50 and there’s minus i don’t know, 30. So your net position is 120. What we do is we create an offset account. So in this offset account we will generate an entry of - 200, + 50, +30 but to balance, we will create an overall group account for the whole company. The group account would then be +200, -50, -30. So the group will have +120

Question 6

What are the benefits of consolidation?

Answer 6

 Deal with only one balance
 Funds move physically which provides
flexibility in how they are used.
 May provide a cheaper source of funding
(internal usually cheaper than external)
 Optimize the interest paid or received
 Easily follow movement of funds
between companies with the offset account

Question 7

What is it called when company borrow from their group?

Answer 7

Inter company loan