Investing in a new factory would affect ABC's balance sheet by increasing non-current assets, and financing could increase liabilities or equity depending on funding.

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Multiple Choice

Investing in a new factory would affect ABC's balance sheet by increasing non-current assets, and financing could increase liabilities or equity depending on funding.

When a company buys a factory, it adds a long-term asset, so non-current assets increase on the balance sheet. How that asset is financed determines where the claim on the assets comes from: if the purchase is funded by borrowing, liabilities rise; if it’s funded by issuing new shares or other equity funding, equity rises. In either case, the total assets increase by the same amount as the non-current asset, keeping the balance sheet balanced. The other ideas fail because a factory is a non-current asset, and financing choices do affect the liabilities or equity side depending on how the funds are raised.

When a company buys a factory, it adds a long-term asset, so non-current assets increase on the balance sheet. How that asset is financed determines where the claim on the assets comes from: if the purchase is funded by borrowing, liabilities rise; if it’s funded by issuing new shares or other equity funding, equity rises. In either case, the total assets increase by the same amount as the non-current asset, keeping the balance sheet balanced. The other ideas fail because a factory is a non-current asset, and financing choices do affect the liabilities or equity side depending on how the funds are raised.

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