Exercise 21.1 ★ ACCOUNTING FOR ASSETS AND LIABILITIES Mensa Ltd has acquired all the shares of Cancer Ltd. The accountant for Mensa Ltd, having studied the requirements of IFRS 3 Business Combinations, realises that all the identifi able assets and liabilities of Cancer Ltd must be recognised in the consolidated fi nancial statements at fair value. Although he is happy about the valuation of these items, he is unsure of a number of other matters associated with accounting for these assets and liabilities. He has approached you and asked for your advice. Required Write a report for the accountant at Mensa Ltd advising on the following issues: 1. Should the adjustments to fair value be made in the consolidation worksheet or in the accounts of Cancer Ltd? 2. What equity accounts should be used when revaluing the assets, and should different equity accounts such as income (similar to recognition of an excess) be used in relation to recognition of liabilities? 3. Do these equity accounts remain in existence indefi nitely, since they do not seem to be related to the equity accounts recognised by Cancer Ltd itself?