C1 plc acquired 85% of the ordinary share capital of D1 plc for £230,000 and 55% of the issued 6% cumulative preference shares for £20,000, both purchases being effected on 1 August 2022. The following balances are taken from the books of the two companies at 31 July 2023:

	C1 plc (£000)	D1 plc (£000)
Ordinary share capital (£1 shares)	500	200
6% cumulative preference shares (50p shares)	-	35
Share premium account	40	20
General reserve	100	30
Retained profits	90	70
Trade accounts payable	70	40
Taxation	80	50
Depreciation
Freehold property	60	20
Plant and machinery	150	70
Freehold property at cost	130	50
Plant and machinery at cost	350	200
Investment in D1 plc	230	-
Inventory	160	90
Accounts receivable	60	30
Cash	35	12

The following additional information is available: (a) Inventory of C1 plc includes goods purchased from D1 plc for £25,000. D1 plc charged out these inventory at cost plus 20%. (b) A proposed dividend of £14,000 by D1 plc includes a full year's preference dividend. No interim dividends were paid during the year by either company. (c) Creditors of C1 plc include £8,000 payable to D1 plc in respect of inventory purchases. Debtors of D1 plc include £15,000 due from C1 plc. The parent sent a cheque for £6,000 to its subsidiary on 30 July 2023 which was not received by D1 plc until August 2023. (d) At 1 August 2022 the balances on the reserves of D1 plc were as follows:

• Share premium: £10,000
• General reserve: £20,000
• Retained profits: £40,000

Required:

1. Prepare a consolidated balance sheet for C1 plc and its subsidiary D1 plc at 31 July 2023. Notes to the accounts are not required. Workings must be shown.
2. Discuss the accounting treatment of 'unrealized profit' on intercompany transactions in the consolidated financial statements.