S plc acquired 70% of the ordinary share capital of T plc for £240,000 and 50% of the issued 5% cumulative preference shares for £18,000, both purchases being effected on 1 March 2022. The following balances are taken from the books of the two companies at 28 February 2023:

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

The following additional information is available: (a) Inventory of S plc includes goods purchased from T plc for £30,000. T plc charged out these inventory at cost plus 25%. (b) A proposed dividend of £15,000 by T plc includes a full year's preference dividend. No interim dividends were paid during the year by either company. (c) Creditors of S plc include £7,000 payable to T plc in respect of inventory purchases. Debtors of T plc include £12,000 due from S plc. The parent sent a cheque for £5,000 to its subsidiary on 27 February 2023 which was not received by T plc until March 2023. (d) At 1 March 2022 the balances on the reserves of T plc were as follows:

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

Required:

1. Prepare a consolidated balance sheet for S plc and its subsidiary T plc at 28 February 2023. Notes to the accounts are not required. Workings must be shown.
2. Explain the accounting treatment of 'unrealized profit' on intercompany transactions in the consolidated financial statements.