CPA Exam - FAR (Financial Accounting and Reporting)State and Local GovernmentsMedium
A city government is preparing its government-wide financial statements. It owns a municipal golf course, which is accounted for as an Enterprise Fund. The golf course had a net capital asset balance of $10,000,000 and related outstanding revenue bonds of $6,000,000. Additionally, the city's General Fund owns a police station with a net capital asset balance of $8,000,000, financed by general obligation bonds of $5,000,000. What is the total 'Net Investment in Capital Assets' that should be reported in the government-wide Statement of Net Position?
- A$18,000,000
- B$13,000,000
- C$10,000,000
- D$7,000,000
Show answer & explanationAnswer & explanation
Correct answer: D. $7,000,000
Net Investment in Capital Assets is calculated by taking the capital assets (net of depreciation) and subtracting the outstanding debt directly related to those assets. You sum this calculation for all capital assets across the government. Golf Course: $10M (assets) - $6M (debt) = $4M. Police Station: $8M (assets) - $5M (debt) = $3M. Total = $4M + $3M = $7M.
Why the other options are wrong
- A. This is the sum of all capital assets, ignoring the related debt.
- B. This sums the debt ($6M + $5M = $11M) and subtracts from total assets ($18M - $11M = $7M). Wait, this is the correct calculation. Total capital assets = $10M + $8M = $18M. Total related debt = $6M + $5M = $11M. Net Investment = $18M - $11M = $7M. So 'B' is not the correct option based on this calculation. 'D' is $7M.
- C. This is likely the golf course assets plus police station debt, or some other incorrect combination.
Net Investment in Capital Assets (Government-Wide)
A component of Net Position in government-wide financial statements, representing the government's equity in its capital assets. It is calculated as capital assets (net of accumulated depreciation) less related outstanding debt.
- Appears on the Statement of Net Position.
- Combines capital assets and related debt from all governmental and business-type activities.
- Debt must be directly attributable to asset acquisition/construction.
- Excludes unspent debt proceeds and capital grants.
Memory trick: Total 'Net Investment' is all 'Assets' minus all 'Associated Debt'.