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

NB. There have been no changes to the share capital of any of the companies since the date Zhang acquired their investments.

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.

Calculate the goodwill that arose on the acquisition of the shares in both Chow and Caves.

(b) Prepare a consolidated income statement for the Zhang Group for the year ended 31 December 2019

(c) Prepare the consolidated extract from the Statement of Equity for the Zhang Group for year ended 31 December 2019

(d) Zhang are thinking of investing in a Scottish company called Tartanus next year. Discuss what difficulties might they face integrating Tartanus into the Zhang Group