Gce Model Questions Vol1 2021 Financial Accounting Question 12

A local authority prepares its annual budget with the following expected figures (all amounts in £): - Revenue: council tax £12,000,000; government grant £5,000,000; service fees £3,000,000. - Expenditure: salaries £10,000,000; maintenance £2,500,000; capital projects £4,000,000. The authority also records a provision for doubtful debts equal to 2 % of total revenue and depreciation on capital assets equal to 5 % of the capital projects cost. Any surplus must be transferred to a statutory reserve fund, but the fund is required to retain at least 20 % of the surplus as a non‑spendable reserve. Assuming the authority transfers only the minimum required amount to satisfy this condition, what amount (in £) is transferred to the reserve fund?