Which would decrease the governmental activities balance in Net Position—Net Investment in Capital Assets?

Which would decrease the governmental activities balance in Net Position—Net Investment in Capital Assets?

• A. Increase in cash
• B. Issuance of long-term debt to acquire capital assets
• C. Increase in accumulated depreciation
• D. Increase in contributed capital

Answer: (C)

Net Investment in Capital Assets represents the portion of net position that is tied up in capital assets, after accounting for depreciation and the debt used to finance those assets. Since NIIC is computed as capital assets, net of depreciation minus the outstanding debt related to those assets, an increase in accumulated depreciation lowers the net carrying amount of capital assets. That reduction directly reduces the Net Investment in Capital Assets, making it the correct effect. In contrast, a rise in cash doesn't affect NIIC because cash is not part of capital assets. Issuing long-term debt to acquire capital assets increases both the capital assets and the outstanding debt, leaving the NIIC amount essentially unchanged. An increase in contributed capital adds to net position and typically boosts capital resources without an offsetting debt, so it would not decrease NIIC.

Net Investment in Capital Assets represents the portion of net position that is tied up in capital assets, after accounting for depreciation and the debt used to finance those assets. Since NIIC is computed as capital assets, net of depreciation minus the outstanding debt related to those assets, an increase in accumulated depreciation lowers the net carrying amount of capital assets. That reduction directly reduces the Net Investment in Capital Assets, making it the correct effect.

In contrast, a rise in cash doesn't affect NIIC because cash is not part of capital assets. Issuing long-term debt to acquire capital assets increases both the capital assets and the outstanding debt, leaving the NIIC amount essentially unchanged. An increase in contributed capital adds to net position and typically boosts capital resources without an offsetting debt, so it would not decrease NIIC.