Reference no: EM132469394
As the trainee accountant at Zhang, a manufacturer of electrical goods, you are responsible for pulling together the first draft of the consolidated results for the Group. Zhang has acquired shares in Chow, Caves and Kaka in recent years and extracts from the most recent financial statements of all the companies are shown below for the year to 31 December 2019.
Income Statements
|
|
Zhang
|
Chow
|
Caves
|
Kaka
|
|
|
$m
|
$m
|
$m
|
$m
|
|
Revenue
|
80
|
70
|
80
|
60
|
|
Cost of sales
|
(26)
|
(47)
|
(30)
|
(30)
|
|
Gross profit
|
54
|
23
|
50
|
30
|
|
Operating expenses
|
(19)
|
(14)
|
(20)
|
(18)
|
|
Operating profit
|
35
|
9
|
30
|
12
|
|
Dividend income
|
9
|
|
|
|
|
Profit before tax
|
44
|
9
|
30
|
12
|
|
Tax
|
(13)
|
(2)
|
(9)
|
(4)
|
|
Profit for the year
|
31
|
7
|
21
|
8
|
Extract from the Statement of Equity
|
|
Zhang
|
Chow
|
Caves
|
Kaka
|
|
|
$m
|
$m
|
$m
|
$m
|
|
Opening retained earnings
|
66
|
24
|
39
|
20
|
|
Profit for the year
|
31
|
7
|
21
|
8
|
|
Dividends paid
|
(15)
|
(10)
|
|
(10)
|
|
Closing retained earnings
|
82
|
21
|
60
|
18
|
Extract from the Statement of Financial Position
|
|
Zhang
|
Chow
|
Caves
|
Kaka
|
|
|
$m
|
$m
|
$m
|
$m
|
|
Ordinary $1 share capital
|
50
|
20
|
20
|
10
|
|
Retained earnings
|
82
|
21
|
60
|
18
|
|
Net Assets
|
132
|
41
|
80
|
28
|
Investments by Zhang
|
Date of Acquisition
|
Company
|
% of Ordinary Shares
Acquired
|
Investment ($m)
|
Book value of the Net Assets at
Date of
Acquisition ($m)
|
|
1/1/12
|
Chow
|
80%
|
$25m
|
$23m
|
|
1/1/15
|
Caves
|
40%
|
$22m
|
$50m
|
|
1/4/17
|
Kaka
|
10%
|
$2m
|
$20m
|
For each investment the book value of the net assets acquired closely resembled the fair value except for some land owned by Chow, which had a fair value at the date of acquisition of $16m compared to the $12m shown on the Statement of Financial Position.
Inter-company Trading
- In December 2019, Chow sold $4.2m of dishwashers to Zhang. Chow sells dishwashers on a cost plus 50% mark-up basis. At the year end Zhang had only sold 40% of the washing machines to customers outside the group.
Goodwill Impairment
- After a recent impairment review, the goodwill in Chow is to be reduced to $2.2m.
Required
Question (a) Calculate the goodwill that arose on the acquisition of the shares in both Chow and Caves.
Question (b) Prepare a consolidated income statement for the Zhang Group for the year ended 31 December 2019
Question (c) Prepare the consolidated extract of retained earnings from the Statement of Equity for the Zhang Group for year ended 31 December 2019
Question (d) The Board of Zhang are thinking of investing in a Scottish company called Ta,ptis, next year. Discuss what difficulties they might face integrating Tadot4,§, into the Zhang Group