A local government issues its Comprehensive Annual Financial Report (CAFR). Which of the following statements about the Net Position classification on the government-wide Statement of Net Position is correct?
- AUnrestricted Net Position represents resources that are legally available for any purpose, including amounts designated by management for specific uses.
- BRestricted Net Position includes resources that are externally imposed limitations on their use by creditors, grantors, or laws/regulations.
- CNet Investment in Capital Assets includes the unspent proceeds of debt issued to acquire capital assets.
- DAll components of Net Position (Net Investment in Capital Assets, Restricted, and Unrestricted) are presented net of related liabilities.
Show answer & explanationAnswer & explanation
Correct answer: B. Restricted Net Position includes resources that are externally imposed limitations on their use by creditors, grantors, or laws/regulations.
Restricted Net Position represents resources for which constraints on their use are either externally imposed by creditors, grantors, contributors, or laws or regulations of other governments, or imposed by law through constitutional provisions or enabling legislation. This directly matches option B.
Why the other options are wrong
- A. Incorrect. Unrestricted Net Position includes amounts that can be used for any purpose, but it does not include amounts that are merely 'designated' by management, as designations are internal and do not restrict net position.
- C. Incorrect. Net Investment in Capital Assets specifically excludes unspent debt proceeds, which would be cash or other liquid assets.
- D. Incorrect. While Net Investment in Capital Assets is net of related debt, Restricted and Unrestricted Net Position are not necessarily presented net of liabilities in the same way; they relate to the nature of the assets and how they can be used.
Restricted Net Position (Government-Wide)
A component of Net Position on the government-wide Statement of Net Position, representing resources for which constraints on their use are externally imposed by creditors, grantors, or laws/regulations, or imposed by law through constitutional provisions or enabling legislation.
- Part of government-wide Statement of Net Position
- Constraints on use are external or legally mandated
- Distinguished from internal designations by management
Memory trick: RUN (Restricted, Unrestricted, Net Investment in Capital Assets)