A city reports $450 million in capital assets and $120 million in bonds payable. The finance director says net investment in capital assets is $330 million. The auditor disagrees. Unspent bond proceeds of $25 million and deferred outflows on refunding of $8 million remain unaccounted for. The correct figure is $313 million. The exam tests whether you can trace every adjustment that transforms raw capital asset balances into the three components of net position.
AICPA Representative Tasks (verbatim). "Application, Calculate the net position balances (unrestricted, restricted and net investment in capital assets) for state and local governments and prepare journal entries."
The Net Position Framework
GASB Statement No. 34 introduced government-wide financial statements that report the entire government using the economic resources measurement focus and accrual basis of accounting. At this level, the residual measure is net position, not fund balance. The Statement of Net Position presents the fundamental equation:
Common mistakes
- Forgetting to add back unspent bond proceeds. The net investment calculation nets capital assets against related debt. If debt was issued but proceeds remain unspent, those proceeds offset the debt until they become assets. Omitting the add-back understates net investment in capital assets.
- Treating board designations as restrictions. Internal commitments by the governing body do not create restricted net position. Only external parties (creditors, grantors, laws of other governments, or constitutional provisions) impose restrictions. The exam will test whether a described constraint is internal or external.
- Including governmental fund balance in net position. Fund balance (nonspendable, restricted, committed, assigned, unassigned) applies to governmental funds. Net position applies to government-wide statements and proprietary/fiduciary funds. Mixing the two is a classification error.
Bottom line
- Net position replaces fund balance at the government-wide level and in proprietary and fiduciary funds; governmental funds still report fund balance under GASB 54 classifications
- Net position has three components: net investment in capital assets, restricted, and unrestricted
- Net investment in capital assets = capital assets net of depreciation − related debt + deferred outflows on debt − deferred inflows on debt + unspent debt proceeds
- Only debt incurred to acquire, construct, or improve capital assets counts as related debt; operating or cash-flow borrowings do not reduce net investment
Exam shortcut
When calculating net investment in capital assets, build a T-account: start with capital assets (net) on the left, subtract related debt and premium, then add unspent proceeds, deferred outflows, and unamortized discount. The result falls out cleanly, and you avoid sign errors. When a question asks whether a resource is restricted, ask who imposed the constraint. External party (grantor, creditor, other government, constitution) = restricted.
The full lesson (about 4,897 words, 33 min read) adds 9 worked examples, all 6 common mistakes, a self-check, free in the app.
Learning objectives
- III.C1
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