Net investment in capital assets calculation requirement

The Latest Rules and Regulations That Impact Your Government Entity

Did you know you are now required to include a file containing the calculation of net investment in capital assets? This file is reported on your government-wide statements of net position for both governmental and business-type activities with your ACFR submission package to GFOA. You need it to receive your Certificate of Achievement for Excellence in Financial Reporting Award. GFOA announced this requirement will be effective for all submissions beginning March 1, 2022.

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Why is a capital assets calculation important?

As so many governments are now issuing debt that is unrelated to the financing of infrastructure, such as pension related debt, the calculation for net investment in capital assets is becoming more difficult for readers to calculate. Additionally, some governments have issued debt to take advantage of the low interest rates with the intentions of using for capital related purposes. However, due to rising costs of construction, they have not spent the proceeds at year end, which contributes to the difficulty in calculating the investment.

Net investment in capital assets represents the net amount invested in capital assets which when calculated is the cost of all capital asset costs net of accumulated depreciation reduced by outstanding balances of debt relating to the acquisition, construction or improvement of capital. Sounds easy, right? However, according to GFOA, you may be surprised by how many governments report an incorrect net investment in capital assets.

How to calculate the net investment in capital assets.

  • Capital assets (both tangible and intangible)
  • Less: Accumulated depreciation/amortization
  • Less: Outstanding principal of capital-related borrowings (i.e. bonds, lease liabilities, subscription-based IT arrangement liabilities, public-private and public-public partnership arrangement liabilities) related to the government’s own capital assets (limited to proceeds expended for capital purposes and excluding unspent proceeds) (“outstanding capital debt”)
  • Less: Debt used to refund capital-related borrowings
  • Less: Any other (non-debt) capital related liabilities as of fiscal year end, including accounts payable and retainage payable
  • Plus: Original issue discounts on outstanding capital debt
  • Less: Original issue premiums on outstanding capital debt
  • Plus: Capital-related deferred outflows of resources (such as a loss on refunding of outstanding capital debt)
  • Less: Capital-related deferred inflows of resources (such as a gain on refunding of outstanding capital debt)

Equals: Net investment in capital assets

A template can be found on GFOA’s website at Going forward, you will need to work with your auditors, or whomever compiles your ACFR, to make sure this calculation is included in your GFOA submission each year.

If you have any questions, please contact your Henry+Horne advisor.

Cailee Lewis, CPA