CPFO Accounting Practice Exam

Question: 1 / 955

How should resources generated by enabling legislation be reflected in net assets?

Net assets invested in capital assets net of related debt

Restricted net assets

Resources generated by enabling legislation are typically intended for specific use in accordance with the stipulations of that legislation. When this legislation allows for the generation of resources that come with explicit restrictions on how they can be used, they should be classified as restricted net assets. Restricted net assets reflect funds that are set aside for a specific purpose, and in this case, the enabling legislation outlines the terms and conditions that designate those resources for particular activities or programs.

This classification is essential because it provides transparency in financial reporting, showing stakeholders that certain funds are not available for general use but are instead tied to the intentions of the legislation. Restricted net assets demonstrate to policymakers, donors, and the public that the resources are being accounted for in a manner consistent with their intended use as prescribed by the enabling legislation.

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Unrestricted net assets

Net assets with no restrictions

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