On 3 October 20X1, Netec Pte Ltd (Netec) purchased a patent costing $2 million to use in a project to develop new products. The legal fee to transfer the patent cost $40,000. Subsequently, Netec spent an additional $200,000 in the investigative phase of the project to verify the feasibility of a new product. The outcome of the investigation confirmed that the product can be developed profitably. The company spent another $1.4 million to develop a working prototype. In order to put the product into a condition for sale, a further $500,000 was incurred. The marketing cost to promote the product was $1 million.

(a) Determine and explain how the above transactions should be treated according to FRS 38 Intangible Assets.

(b) Illustrate the accounting by preparing all the relevant journal entries