K1 plc acquired 70% of the ordinary share capital of L1 plc for £240,000 and 50% of the issued 5% cumulative preference shares for £18,000, both purchases being effected on 1 December 2022. The following balances are taken from the books of the two companies at 30 November 2023:

• Ordinary share capital (£1 shares):
  • K1 plc: £600,000
  • L1 plc: £250,000
• 5% cumulative preference shares (50p shares):
  • K1 plc: £0
  • L1 plc: £40,000
• Share premium account:
  • K1 plc: £50,000
  • L1 plc: £30,000
• General reserve:
  • K1 plc: £120,000
  • L1 plc: £40,000
• Retained profits:
  • K1 plc: £110,000
  • L1 plc: £80,000
• Trade accounts payable:
  • K1 plc: £90,000
  • L1 plc: £50,000
• Taxation:
  • K1 plc: £100,000
  • L1 plc: £60,000
• Depreciation:
  • Freehold property:
    • K1 plc: £60,000
    • L1 plc: £30,000
  • Plant and machinery:
    • K1 plc: £180,000
    • L1 plc: £90,000
• Freehold property at cost:
  • K1 plc: £150,000
  • L1 plc: £60,000
• Plant and machinery at cost:
  • K1 plc: £400,000
  • L1 plc: £250,000
• Investment in L1 plc:
  • K1 plc: £240,000
  • L1 plc: £0
• Inventory:
  • K1 plc: £200,000
  • L1 plc: £120,000
• Accounts receivable:
  • K1 plc: £70,000
  • L1 plc: £35,000
• Cash:
  • K1 plc: £40,000
  • L1 plc: £15,000

The following additional information is available: (a) Inventory of K1 plc includes goods purchased from L1 plc for £30,000. L1 plc charged out these inventory at cost plus 25%. (b) A proposed dividend of £15,000 by L1 plc includes a full year's preference dividend. No interim dividends were paid during the year by either company. (c) Creditors of K1 plc include £7,000 payable to L1 plc in respect of inventory purchases. Debtors of L1 plc include £12,000 due from K1 plc. The parent sent a cheque for £5,000 to its subsidiary on 30 November 2023 which was not received by L1 plc until December 2023. (d) At 1 December 2022 the balances on the reserves of L1 plc were as follows:

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

Required:

1. Prepare a consolidated balance sheet for K1 plc and its subsidiary L1 plc at 30 November 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.