Since the beginning of the financial year, Large Mart has spent $100,000 to create a new computer program that is able to automatically summarise the content of a university lecture without any manual work being required by students. Large Mart decided to undertake this project because its programming department knew it had the technical knowledge to develop the program successfully, and college students had previously expressed strong interest to purchase such a program. This week, the program has been completed and it will go on sale next week. The Large Mart accounting department is unsure if the $100,000 that was spent on the creation of the program is regarded as a development or research cost. As a result, the accounting department is also unsure how to account for the monies spent on the creation of the program.

1) Provide a detailed discussion of the difference between development and research expenditures, and explain what criteria must be used to distinguish between development and research expenditures in the Australian financial accounting environment.

2) Determine if the creation of the program represents development or research expenditure, using a detailed evaluation of the criteria you have identified in question 1, and explain how the funds spent on the creation of the program should be accounted for