P plc acquired 80 per cent of the ordinary share capital of S plc for £150,000 and 50 per cent of the issued 10 per cent cumulative preference shares for £10,000, both purchases being effected on 1 May 20X7. There have been no changes in the issued share capital of S plc since that date. The following balances are taken from the books of the two companies at 30 April 20X8:

The following additional information is available:

(a) Stocks of P plc include goods purchased from S plc for £20,000. S plc charged out these stocks at cost plus 25 per cent.

(b) Proposed dividend of S plc includes a full year’s preference dividend. No interim dividends were paid during the year by either company.

(c) Creditors of P plc include £6,000 payable to S plc in respect of stock purchases. Debtors of S plc include £10,000 due from P plc. The holding company sent a cheque for £4,000 to its subsidiary on 29 April 20X8 which was not received by S plc until May 20X8.

(d) At 1 May 20X7 the balances on the reserves of S plc were as follows:

(e) Goodwill is not amortised.

Required:

(a) Prepare a consolidated balance sheet for P plc and its subsidiary S plc at 30 April 20X8.

Notes to the accounts are not required. Workings must be shown.

(b) Explain what is meant by the term ‘cost of control’ and justify your treatment of this item in the above accounts.

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Ordinary share capital (£1 shares) 10% cumulative preference shares (50p shares) Share premium account General reserve Profit and loss account Trade creditors Taxation Proposed dividends Depreciation Freehold property Plant and machinery Freehold property at cost Plant and machinery at cost Investment in S plc Stocks Debtors Cash P plc £000 300 20 68 50 35 50 15 40 100 678 86 272 160 111 30 19 678 S plc £000 100 20 10 15 35 22 30 15 48 305 55 168 - 65 15 2 305