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Melbourne Ltd acquired 100% of Sydney Ltd on 11 December 2016. On 1 January 2017,...

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Accounting

Melbourne Ltd acquired 100% of Sydney Ltd on 11 December 2016. On 1 January 2017, Sydney Ltd sold a machine to Melbourne Ltd for $80,000 and recorded a profit of $20,000. Melbourne Ltd will depreciate this machine on a straight-line basis over its useful life of 8 years. You, the group accountant, have just finished preparing the consolidated financial statements for the year ending 30 June 2020. Mrs Jones, CEO of Melbourne Ltd, is not an accountant and she doesnt understand why you had to make some adjustments before you prepare the consolidated accounts.

Required: Write an email to Mrs Jones summarising why it is essential to adjust for this intra-group transaction before preparing the consolidated financial statements. Note: consolidation entries are not required.

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