Hornby Ltd is a research company, which specialises in developing new materials and manufacturing processes for the construction industry. The company receives payments from a variety of manufacturers, for the right to use the company's patented materials and processes. The company started the following projects during the year ended 31 March 2021.

Project A: Creation of a new colour-fast dye.

Expenditure incurred during the year was $150,000.

It is expected to cost a total of $3,000,000 to complete the prototype, which brings it to the state of production or ready for market. Future revenues are likely to exceed $5,000,000. The completion date is uncertain because external funding will have to be obtained before the development of the prototype can be completed.

Project B: Investigation of a new adhesive that can be potentially used in the aerospace industry.

Expenditure incurred during the year was $110,000.

If this proves effective then Hornby Ltd may well generate significant income because it will be used in place of existing adhesives.

REQUIRED

Explain how the two projects A and B will be dealt with in Hornby Ltds Statement of Profit or Loss and Other Comprehensive Income and Statement of Financial Position for the year ended 31 March 2021. In each case, explain your proposed accounting treatment with reference to NZ IAS 38 (Intangible Assets).