At balance date, King Ltd has 45% of the voting rights in Queen Ltd. The remaining voting rights are widely dispersed and no one else holds voting rights more than 5%. In addition, King Ltd holds potential voting rights in Queen Ltd amounting to 2% that are currently exercisable, and a further 10% of voting rights in Queen Ltd that can be exercised in two years time. Which of the following statements is correct?

1 Current consolidated financial statements must not be prepared as power over Queen Ltd does not exist.

2 Current consolidated financial statements must be prepared as King Ltd has more than half of the voting rights in Queen Ltd at balance date.

3 Current consolidated financial statements must be prepared as potential voting rights are substantive.

4 Current consolidated financial statements must be prepared as the remianing voting rights are widely dispersed and no one else holds voting rights more than 5%.