Which of the following would increase the governmental activities balance in Net Position—Net Investment in Capital Assets?

• A. Depreciation Expense on Capital Assets.
• B. Grant Revenue Used to Construct a Sidewalk.
• C. Proceeds from Sale of a Capital Asset.
• D. Use of Tax Revenues to Acquire a Police Department Building.

Answer: (D)

Net position’s Net investment in capital assets grows when a government acquires capital assets with current resources rather than by incurring debt. Paying for a police building with tax revenue adds a capital asset to the government’s books and does not create a related debt, so the net investment in capital assets increases. Depreciation reduces the asset base over time, so it lowers net position and specifically lowers this component. A grant used to construct a sidewalk typically increases capital assets but is recorded as a capital grant/contributions in net position rather than increasing the net investment in capital assets, so it doesn’t boost that particular measure. Proceeds from selling a capital asset remove the asset from the books and any resulting gain generally goes to unrestricted net position, not into net investment in capital assets. Thus, using tax revenues to acquire the building best increases Net investment in capital assets.