Background: In accordance with its policy XYZ Pty Ltd (XYZ) undertakes major repairs to its manufacturing plant every third year. The last major repair occurred in June 2017. The directors plan to undertake the next major repairs the 2020 financial year at a cost estimated at $150,000. The contract for the major repairs by an external provider will be signed at the beginning of the 2020 financial year. Given their prudent financial management the directors wish to accrue an expense and a corresponding liability of $50,000 in the 2018 financial statements and a further $50,000 in the 2019 financial statements.

Required a) Referring to the recognition criteria of a liability, explain whether the proposed accrual of $50,000 to be recognised in each of the 2018 and 2019 financial years meets the recognition criteria of a liability when applying the principles of the current Conceptual Framework. b) Assuming that a non-cancellable contract amounting to a discounted price of $135,000 is signed at the beginning of the 2018 financial year, with reference to the recognition criteria of a liability, explain whether the proposed accrual of $50,000 to be recognised in each of the 2018 and 2019 financial years meets the recognition criteria of a liability when applying the principles of the current Conceptual Framework.