Michael Ltd acquired 100% of the shares of Petersen Ltd on 1 July 2016. The cost of investment was $720 000. At that date the capital and reserves of Petersen were:

Share capital $260 000

Retained earnings $200 000

At the date of acquisition all assets of Petersen were considered to be fairly valued, except for a plant that had a fair value $20 000 greater than its carrying amount. The cost of the plant was $100,000 and it had accumulated depreciation of $60,000. The plant had original estimated useful life of 10 years.

During financial year 01/07/2016-30/06/2017, Petersen sold $30 000 in inventory to Michael for on-sale to external parties. The inventory had originally cost Petersen $22,000. At the year end, Michael still had half of the inventory on hand. On-hand inventory was expected to be sold in the subsequent period. There were no other intro-group transactions between Michael and Petersen for year ended 30 June 2017.

Michael incurred the following transactions with Petersen during financial year 01/07/2017- 30/06/2018:

Michael made total sales in inventory to Petersen of $62 000, while Petersen sold $65 000 in inventory to Michael. These inventories are expected to be sold to external parties.

The closing inventory in Michael includes inventory acquired from Petersen at a cost of $36 000. This cost Petersen $29 000 to purchase. Petersen sold all inventory acquired from Michael to external parties during the year.

On 1 July 2017 Michael sold an machinery to Petersen for $145 000 when its carrying amount in Michael's accounts was $100 000 (initial cost $168 650, accumulated depreciation $68 650). This machinery is assessed as having a remaining useful life of 9 years.

Petersen declared and paid dividend $100 000 on 30 June 2018.

Michael provided management consultation to Petersen and this was the first time that Michael Ltd provided such service to Petersen. At the end of 2019, Petersen paid $8,000 for these services and has a balance of $1000 payable at year end.

Petersen has a number of long-term loans, including a four-year loan for $50,000 from Michael. This loan was effective from 1 July 2017. Interest rate was 4% per annum. During the year ending 30 June 2018, Petersen paid $1000 interest on this loan.

You were requested to prepare the followings:

I. acquisition analysis and adjustment/elimination journal entries for consolidation at acquisition, 1 July 2016;

II. adjustment/elimination journal entries for consolidation as at 30 June 2017, and III. adjustment/elimination journal entries for consolidation as at 30 June 2018.

After meeting with your supervisor, you gathered the following information which you might need to complete the work:

Michael has the following accounting policies for the economic entity:

Revaluation adjustments on acquisition are to be made on consolidation only, not in the books of any subsidiary;

Plant and machinery are depreciated using the straight-line method with no residual value. For part-years, depreciation is to be calculated on the number of months the asset is held in the relevant year.

All calculated amounts are to be rounded to the nearest whole dollar. Companies in the group do not show cents in any journals, worksheets, or financial statements.

Management team of Michael believes that goodwill acquired from business combination is impaired by $6 000 in the current financial year. Previous impairment of goodwill amounted to $4 000.

Michael declared dividend $200 000 and paid dividend $150 000 on 30 June 2018.

The company tax rate is currently 30% and this rate has not changed for a number of years.