ARC Engineering Ltd is a metal engineering and steel fabrication company that operates a factory in NSW. In January 2023, effluent was released from ARC Engineering Ltds factory into an adjacent wildlife reserve. In March 2023, environmental officers from the City of Sydney Council confirmed that the wildlife reserve was heavily contaminated with methylene chloride and chromium VI (hexavalent chromium) and that ARC Engineering Ltd was responsible for the contamination. ARC Engineering Ltd is not legally obligated to clean up the contaminated wildlife reserve. However, ARC Engineering Ltd has a long history of cleaning up land that it has contaminated and has frequently promoted itself as being an environmentally conscious company that takes its environmental responsibilities seriously. In addition, in April 2023, ARC Engineering Ltd made a series of public announcements that it would clean up the contaminated wildlife reserve. Because of the complexities involved, ARC Engineering Ltd believes that the clean up will occur in three years time. As at 30 June 2023, ARC Engineering Ltd estimates the future cost of cleaning up the contaminated wildlife reserve as follows: Cost Probability $4,500,000 10% 2,500,000 15% 2,000,000 65% 1,500,000 10% On 30 June 2023, the risk-free discount rate, based on three-year government bonds, is 4%. However, ARC Engineering Ltd believes that a discount rate of 3% is appropriate to adjust for the risks specific to this liability. Required (a) Explain why, as at 30 June 2023, the cost of the future clean up of the wildlife reserve creates a liability for ARC Engineering Ltd. Why is this liability classified as a provision? (b) What are two ways in which the risks and uncertainties surrounding an event can be considered in reaching the best estimate of a provision? (c) Determine the amount that, in your judgement, ARC Engineering Ltd should recognise as a provision as at 30 June 2023. Justify the approach that you used to calculate the amount. You should note that the marks for this part are for the approach that you take and the justification rather than the calculation.