Two smaller banks that operate in Australia are the Ballarat Bank and the St Martins Bank. These
Question:
Two smaller banks that operate in Australia are the Ballarat Bank and the St Martins Bank. These have in the past primarily offered domestic banking services to their customers. However in recent times, these customers have made increasing demands for international currency transactions and access to offshore banking arrangements. As both banks individually are not prepared to undertake the risks associated with international operations on their own, they have decided to join together to provide these services to their customers.
To this end, they have formed the Overseas Bank. This bank is regarded as a separate vehicle in its own right, with the assets and liabilities of the Overseas Bank being those of the bank itself. The Ballarat Bank and St Martins bank will each hold a 50% interest in the Overseas Bank. These two banks have signed an agreement such that all major decisions in relation to the Overseas Bank require the unanimous agreement of the two banks. The board of the Overseas Bank will consist of an equal number of representatives of these two banks.
The Ballarat Bank and the St Martins bank have agreed to provide initial funding to establish the Overseas Bank and have also agreed on a mechanism for further cash inflows if required.
Required
Discuss whether a joint arrangement exists and how it should be classified.
Step by Step Answer:
Financial Reporting
ISBN: 9780730396413
4th Edition
Authors: Janice Loftus, Ken Leo, Sorin Daniliuc, Belinda Luke, Hong Nee Ang, Mike Bradbury, Dean Hanlon, Noel Boys, Karyn Byrnes