Net Investment in Capital Assets and Its Importance

Net Investment in Capital Assets is a critical component of an entity's financial position, reflecting the value of capital assets owned. It represents the portion of the net position that is not spendable as it is invested in assets. Calculating Net Investment in Capital Assets involves subtracting related debt and liabilities, deferred inflows, advances, and deferred outflows from the net carrying value of capital assets. This figure is important for financial reporting and analysis, particularly in governmental and business-type activities. GASB standards like GASB 34 and GASB 63 provide guidance on reporting Net Investment in Capital Assets. Moreover, the Government Finance Officers Association requires a NICA calculation for entities seeking their Certificate of Excellence.

• Capital Assets
• Financial Reporting
• GASB Standards
• Net Investment
• Government Finance

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1. NET INVESTMENT IN CAPITAL ASSETS Reggie Beasley Deputy Director Georgia Department of Audits and Accounts

2. OBJECTIVES: What is Net Investment in Capital Assets? Why is Net Investment in Capital Assets important? How should Net Investment in Capital Assets be calculated? Some common mistakes.

3. WHAT IS NET INVESTMENT IN CAPITAL ASSETS? A Component of Net Position Net Book Value of Capital Assets that the entity owns

4. NET POSITION Net Investment in Capital Assets Restricted for Continuation of Federal Programs 653,374 Debt Service Capital Projects 6,359,939 Unrestricted (Deficit) <34,211,129> $ 34,991,133 189,860 Total Net Position $ 7,983,177

5. WHY IS NET INVESTMENT IN CAPITAL ASSETS IMPORTANT? It reflects the portion of Net Position that is not spendable because it is invested in Capital Assets

6. GASB 34 Unrestricted Net Assets Restricted Net Assets Investment in Capital Assets Net of Related Debt

7. GASB 63 Unrestricted Net Position Restricted Net Position Net Investment in Capital Assets

8. GOVERNMENT FINANCE OFFICERS ASSOCIATION B7 ACFRs submitted as of March 1, 2022, must include an Excel or PDF file containing the NICA calculation for both governmental and business-type activities, as applicable. The calculation may be at a summary level and no specific format is being requested. Calculations must be submitted with the ACFR within 6 months your entity s fiscal year end to receive the Certificate of Excellence.

9. NICA CALCULATION: Capital Assets, Net of Accumulated Depreciation (Net Carrying Value) Less: Related Debt and Liabilities (bonds, leases, loans, notes, unamortized bond premiums, accounts payable, contracts payable, retainage payables) Less: Related Deferred Inflows (gain on refunding debt, service concession arrangement) Less: Related Advances Plus: Related Deferred Outflows (loss on refunding debt) Plus: Unamortized Discount on the original issuance of Debt Plus: Unspent Debt Proceeds on Hand Plus: Uncapitalized expenses of Debt Proceeds

10. NICA CALCULATION EXAMPLE: Capital Assets, Net of Accumulated Depreciation $ 46,589,885 Less: Outstanding Related Debt G. O. Bond outstanding at fiscal year end - 18,040,000 Unamortized Portion of Bond Premium - Related Contracts Payable - Related Accounts Payable - Related Retainage Payable - Plus: Unspent Debt Proceeds on Hand + 12,225,000 Uncapitalized expenses of Debt Proceeds + 716,352 3,612,464 2,439,599 4,421 443,620 Equals: Net Investment in Capital Assets: $ 34,991,133

11. COMMON ERRORS: Including long-term liabilities or debt not related to capital assets Assuming unspent debt proceeds on hand are Insignificant or miscalculating unspent debt proceeds on hand

12. UNSPENT DEBT PROCEEDS Cash Method (maintained in a separate bank account or cash account) Cash Balance at fiscal year end Less: cumulative interest earned Fund Balance Method (maintained in a separate fund) Ending Fund Balance for Debt Proceeds Fund Less: cumulative interest earned (Because fund balance accounts for accounts, contracts and retainage payables charged to this fund be careful that you have not already considered these payables when initially considering related debt and liabilities)

13. OTHER COMMON ERRORS: Only considering current year non-capitalized items purchased with capital asset debt Considering unspent debt proceeds on hand or uncapitalized expenses of debt proceeds when all the related debt is paid off

14. For Unspent Debt Proceeds on Hand and Uncapitalized Expenses of Debt Proceeds Do not add back more than the related debt that is outstanding at fiscal year end. (these are only added back to reduce the related debt considered in the NICA calculation)

15. NICA CALCULATION EXAMPLE: Capital Assets, Net of Accumulated Depreciation $ 28,700,000 Less: Outstanding Related Debt G. O. Bond outstanding at fiscal year end -200,000 Plus: Unspent Bond Proceeds on Hand and 100,000 Uncapitalized expenses of Bond Proceeds 150,000 +200,000 Equals: Net Investment in Capital Assets: $ 28,700,000 (Only add back the amount equal to or less than the related outstanding debt.)

16. QUESTIONS Reggie Beasley beasleyr@audits.ga.gov

17. Engagement Question 9/23/2024