Sugarcube Drug and Chemical Ltd is undertaking a number of research and development projects, including the following. Project A: Sugarcube is undertaking research into a new growth drug for chickens. Test results have been encouraging. Growth rates of chickens on the new drug are 10% higher than the growth rate of chickens on currently available drugs. The new drug would enable more intensive use of existing chicken farms, because more batches of chickens could be grown annually. Sugarcube believes there is a large market for the new drug. However, unacceptably high levels of the drug remain in the chicken meat, so the drug would not be approved by the health authorities in its present form. Sugarcube is undertaking further research to overcome this problem. Sugarcube believes that, on the balance of probabilities, it will find a solution to this problem. Research costs incurred on Project A during the current period are $2 million. Project B: Sugarcube is developing a new fertiliser for rice crops. Tests have found a significant improvement in the quality of rice produced. The fertiliser would enable increased production of premium-quality rice, which commands high prices in the market, so Sugarcube is confident of obtaining large sales of the fertiliser in Australia and Southeast Asia. Sugarcube is also confident of developing the techniques required and expects to introduce the new fertiliser to the market early next year. Research and development costs incurred on Project B during the current period are $4 million. Project C: Sugarcube has generated a new concentrated spray that can be used to control various insects that attack apple trees and cause poor-quality fruit. The new spray enables increased production of eating-quality apples. Sugarcube is currently establishing production facilities for the new spray. Research and development costs incurred on Project C during the current period are $5 million. Research and development costs incurred on Project C in previous periods and deferred to future periods amount to $1.2 million. Sugarcube is confident of obtaining total sales of at least $20 million during the expected product life cycle. The associated production, selling and administrative costs are estimated to be $17 million. Sugarcube believes there is a possibility of obtaining additional sales of $10 million, which would incur additional production, selling and administrative costs estimated to be $6 million.

Required

(a) Explain the criteria established in AASB 138 for recognition development as an internally generated intangible asset. (b) Explain whether the research and development costs incurred on each of Projects A, B and C should be recognised as an internally generated intangible asset, according to AASB 138. Consider whether the research and development costs incurred on these projects in previous periods should have been deferred to future periods. (LO5)