Brice Foods Group, a European food retailer that operates supermarkets in seven countries, engaged in the following transaction during 2013: purchased and received inventory costing €500 million on account from various suppliers. Indicate the effects of the transaction on the balance sheet equation.Brice Foods Group applies IFRS, and reports its results in millions of euros.
A)Assets + €500 million; Liabilities + €500 million
B)Assets + €500 million; Shareholders' Equity + €500 million
C)Liabilities + €500 million; Shareholders' Equity + €500 million
D)Liabilities + €500 million; Shareholders' Equity - €500 million
E)Assets + €500 million; Shareholders' Equity - €500 million

Question

Quizplus · Accepted Answer

Inventory is an asset, and the company obtained it on credit, which creates a liability. Therefore, the transaction increases both assets and liabilities by €500 million. The equation remains balanced, as both sides increase by the same amount. Thus, the correct answer is A, Assets + €500 million; Liabilities + €500 million.

Brice Foods Group, a European Food Retailer That Operates Supermarkets