Statement of Profit or Loss and Other Comprehensive Income and

Retained Earnings
ABC Inc. XYZ Inc.
Year ended Dec.31, 2020 Year ended Sept.30. 2020
Profit before income tax 2,000,000 1,200,000
Income tax expense -600,000 -360,000
Profit after income tax 1,400,000 840,000
Retained earnings,beg. 2,600,000 1,260,000
Retained earnings, end 4,000,000 2,100,000

Statement of Financial Position

ABC Inc. XYZ Inc.
As of Dec.31, 2020 As of Sept.30,2020

Investment in XYZ Inc. 6,000,000 -

Other Assets 8,000,000 6,100,000
14,000,000 6,100,000

Share Capital 10,000,000 4,000,000

Retained Earnings 4,000,000 2,100,000
14,000,000 6,100,000

Solution:
1)The first way to consolidate the financial statements of XYZ, Inc. is to adjust its financial
statements (for consolidation purposes only) so that its year end coincides with the year end of
ABC, Inc. In this case, the profit for the first quarter of its 2020 financial year (i.e. October 2019 to
December 2019) shall be deducted while the profit for the first quarter of its 2021 financial year
(i.e. October 2020-March 2021) shall be added. For the financial position, however, the assets and
liabilities as of Sept.30,2020 shall be adjusted invidually for their movements up to Dec.31, 2020
so that their net increase is equal to the net profit for the first quarter of the 2021 financial year.

2) The other way is to consolidate the financial statements of XYZ, Inc. as they stand. The results of
operations of XYZ, Inc. would be included in the consolidated statement of profit or loss and other
comprehensive income with effect from Jan.1,2020 to Sept.30,2020.