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Prepare the consolidated financial statements

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Reference no: EM133042598

Question - AFL Ltd acquired 100% if NRL Ltd on 18 September 2016. Soon after the acquisition two transactions took place between these two entities. The first was a lease agreement signed on 1 March 2017 whereby NRL Ltd leased a warehouse from AFL Ltd at a monthly rent of $18,000. Rent was payable three months in advance. The second was an interest-only loan of $500,000 by AFL Ltd to NRL Ltd on 29 July 2017. The interest rate was 6% p.a. and interest was payable monthly. No repayment of principle was required.

You, the group accountant, have just finished preparing the consolidated financial statements for the year ending 30 June 2020. Mrs Richards, CEO of AFL Ltd, is concerned that most of the board members are non-accountants and wouldn't understand the adjustments you have done to prepare the consolidated accounts.

Required - Write a memo to the board summarising what you did and why it is essential to adjust for these intra-group transactions before preparing the consolidated financial statements. Note: consolidation entries are not required.

Reference no: EM133042598

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