Economics · Financial Statement Impact of Treasury Management
A large conglomerate, with accounts across 15 different banks, faces fragmented liquidity: it holds ₹50 crore idle in some accounts while paying 12% interest on a ₹100 crore Cash Credit limit elsewhere. The CFO consolidates operations under a single 'Lead CMS Bank' implementing API-based ERP integration, a Virtual Account structure for sales offices, and a Notional Pooling arrangement for its units. What is the most direct impact of this proposed CMS solution on the company's financial statements?
Verified Solution4 OptionsUpdated: October 2026👁️1 View
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- 1An increase in 'Operational Expenses' that completely negates the interest cost savings due to high API integration fees.
- 2A decrease in the 'Current Ratio' because the consolidation of cash into a single account reduces total Cash and Bank Balances recorded as assets.
- 3A significant reduction in 'Finance Costs' on the Profit and Loss statement due to the offsetting of surplus credit balances against the Cash Credit debit balance.✓
- 4An increase in 'Other Income' due to higher interest earned on idle balances across multiple bank accounts.
Correct answer
A significant reduction in 'Finance Costs' on the Profit and Loss statement due to the offsetting of surplus credit balances against the Cash Credit debit balance.
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