Question

Governmental Accounting.

1. With respect to proprietary funds, the net position (i.e., fund equity) section of the Statement of Net Position is displayed within two categories: Restricted and Unrestricted Net Position.

True or False?

Answer 1

Answer of this question is FALSE, As net position (fund equity) is reported in three categories: (1) net investment in capital assets; (2) restricted; and (3) unrestricted

1 Net Investment in Capital Assets The amount should be calculated as follows: 1. Capital asset balances in the statement of net position (including restricted capital assets), 2. Minus accumulated depreciation (if capital assets are not reported net), and 3. Minus outstanding balances of any bonds, mortgages, notes, or other capital related debt that are attributable to the acquisition, construction, or improvement of those assets. Deferred outflows and inflows of resources that are attributable to acquisition, construction, or improvement of those assets or related debt should be also included in calculation. All capital assets should be reported as Net Investment in Capital Assets, regardless of restrictions but they should not include any financial resources restricted for capital assets acquisition (e.g., unspent bond proceeds, etc.). The latter would be reported as Restricted component of net position.If one government issued debt to finance the capital assets of another government, this debt should not reduce the Net Investment in Capital Assets unless the capital assets are also reported by the government issuing debt. If they are not reported, the debt should be reported in the Unrestricted component of net position. If the amount is significant, government should disclose details in the notes to the financial statements.

2 Restricted Component of Net Position Component of net position should be reported as restricted when constraints placed on its use are either:  Externally imposed by creditors (such as through debt covenants), grantors, contributors, or laws or regulations of other governments, or  Imposed by law through constitutional provisions or enabling legislation. If there are permanent funds, the restricted component of net position sets should be also displayed as expendable and non expendable.

3 Unrestricted Component of Net Position Unrestricted component of net position is a default category. If the asset does not meet criteria for Net Investment in Capital Assets, and Restricted component of net position, it should be reported as unrestricted. Designations should not be reported on the face of the statement, but the details can be disclosed in the notes to the financial statements. It is possible that unrestricted component of net position may be a negative number (e.g., significant balances of noncurrent operating liabilities such as compensated absences, net pension obligation, or pension related debt exist, etc.).