Dampier Dirtworks Company Ltd (DDC) was floated by public subscription on 1 July 2026. The entity so formed engaged in a number of revenue-earning activities which had been previously administered by the government’s Maritime Department. However, the government, in order to generate much-needed cash flows, decided to sell these activities to private enterprise.

The two major revenue-earning activities acquired by DDC were as follows.

1. Operation and maintenance of all shipping channels within the port of Eden. After the company was formed, it acquired a number of dredges from the Maritime Department, these being used to prevent silting of shipping channels.

Constant dredging of the channels and creation of new channels has occurred since the city began, because only limited natural channels exist within the port. In return for undertaking these activities, DDC has the authority to charge shipping fees on all visiting cargo ships using the channels. Many other forms of shipping traffic such as pleasure craft, tourist boats, fishing trawlers, ferries, power boats and jet skis also use these shipping channels because of the shallowness of the port, but are not required to pay any formal shipping fees. No organ¬isation other than DDC is permitted to dredge channels.

2. The basin of the Torrent River on which the port of Eden is situated is very rich in gravel. Hence, as a result of the dredging operations, a very large tonnage of high-quality gravel is dredged by DDC. All gravel is sold under a fixed contract to Croydon Concrete Ltd. Gravel is also quarried by a number of other companies around the port of Eden.

The general manager of DDC is having difficulty in clarifying a number of conceptual and practical issues about the entity he now controls. He is seeking answers to the following questions:

• What assets does DDC have?

• Are the river channels assets or are they a public good?

• Tons of gravel are lying on the river bed, just waiting to be dredged. Is it an asset now, or when it is ‘floating gravel’, or when it is delivered, or at some other time?

• As DDC is required by the government to keep the channels clean or face penalties, is there a liability here? Over how many years?

• Pleasure craft use DDC’s channels. Does this affect the classification of the channels?

Required

(a) As consultant to DDC, provide a report to the general manager to help him determine what items should be included in DDC’s financial statements and how to account for the activities of the business.