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 building with an original cost of $10,000,000, accumulated depreciation of $3,000,000, and outstanding general obligation bonds used to finance its acquisition totaling $4,000,000. How much should the city report as 'Net Investment in Capital Assets'?
- A$10,000,000
- B$3,000,000
- C$7,000,000
- D$6,000,000
Show answer & explanationAnswer & explanation
Correct answer: B. $3,000,000
Net Investment in Capital Assets is calculated as the cost of capital assets less accumulated depreciation, and less any outstanding debt directly attributable to the acquisition, construction, or improvement of those assets. Calculation: $10,000,000 (Cost) - $3,000,000 (Accumulated Depreciation) - $4,000,000 (Related Debt) = $3,000,000.
Why the other options are wrong
- A. This is the original cost, not the net investment.
- C. This only subtracts accumulated depreciation, ignoring the related debt.
- D. This would be the net book value if there was no related debt.
Net Investment in Capital Assets (Government-Wide)
A component of Net Position in government-wide financial statements, calculated as capital assets (net of accumulated depreciation) less any outstanding debt directly attributable to the acquisition, construction, or improvement of those assets.
- Part of government-wide Net Position
- Capital assets net of depreciation
- Less related outstanding debt
Memory trick: Government's net position shows its assets, less debt, plus restricted funds.