Smensa Ltd. has acquired all the shares of Carljad Ltd. The accountant for Smensa, having studied the requirements of IFRS 3 Business Combinations, realizes that all the identiﬁable assets and liabilities of Carljad must be recognized in the consolidated ﬁnancial 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.
Write a report for the accountant at Smensa advising on the following issues:
(a) Should the adjustments to fair value be made only in the consolidated ﬁnancial statements or in the books and records of Carljad?
(b) What equity accounts should be used when revaluing the assets, and should different equity accounts such as in-come (similar to recognition of an excess) be used in relation to recognition of liabilities?
(c) Do these equity accounts remain in existence indeﬁnitely, since they do not seem to be related to the equity accounts recognized by Carljad itself?