E1 plc acquired 70% of the ordinary share capital of F1 plc for £240,000 and 50% of the issued 5% cumulative preference shares for £18,000, both purchases being effected on 1 September 2022. The following balances are taken from the books of the two companies at 31 August 2023:

• Ordinary share capital (£1 shares):
  • E1 plc: £600,000
  • F1 plc: £250,000
• 5% cumulative preference shares (50p shares):
  • E1 plc: £0
  • F1 plc: £40,000
• Share premium account:
  • E1 plc: £50,000
  • F1 plc: £30,000
• General reserve:
  • E1 plc: £120,000
  • F1 plc: £40,000
• Retained profits:
  • E1 plc: £110,000
  • F1 plc: £80,000
• Trade accounts payable:
  • E1 plc: £90,000
  • F1 plc: £50,000
• Taxation:
  • E1 plc: £100,000
  • F1 plc: £60,000
• Depreciation:
  • Freehold property:
    • E1 plc: £60,000
    • F1 plc: £30,000
  • Plant and machinery:
    • E1 plc: £180,000
    • F1 plc: £90,000
• Freehold property at cost:
  • E1 plc: £150,000
  • F1 plc: £60,000
• Plant and machinery at cost:
  • E1 plc: £400,000
  • F1 plc: £250,000
• Investment in F1 plc:
  • E1 plc: £240,000
  • F1 plc: £0
• Inventory:
  • E1 plc: £200,000
  • F1 plc: £120,000
• Accounts receivable:
  • E1 plc: £70,000
  • F1 plc: £35,000
• Cash:
  • E1 plc: £40,000
  • F1 plc: £15,000

The following additional information is available: (a) Inventory of E1 plc includes goods purchased from F1 plc for £30,000. F1 plc charged out these inventory at cost plus 25%. (b) A proposed dividend of £15,000 by F1 plc includes a full year's preference dividend. No interim dividends were paid during the year by either company. (c) Creditors of E1 plc include £7,000 payable to F1 plc in respect of inventory purchases. Debtors of F1 plc include £12,000 due from E1 plc. The parent sent a cheque for £5,000 to its subsidiary on 30 August 2023 which was not received by F1 plc until September 2023. (d) At 1 September 2022 the balances on the reserves of F1 plc were as follows:

• Share premium: £15,000
• General reserve: £25,000
• Retained profits: £45,000

Required:

1. Prepare a consolidated balance sheet for E1 plc and its subsidiary F1 plc at 31 August 2023. Notes to the accounts are not required. Workings must be shown.
2. Explain the accounting treatment of 'cost of control' in the consolidated financial statements.