When answering the provided questions you must ensure that your answers address the questions, that your answers have an Australian accounting/financial reporting focus, that your answers are internally consistent, and that the individual components of your answers provide a well-rounded argument that is easy to follow.

The Chief Financial Officer (CFO) of Large Mart has been unable to find answers for two accounting problems. He has asked you to investigate the following questions and to write a report (including relevant references to source materials and accounting standards) that will provide him with a sufficient understanding of these issues to allow a well-supported decision to be made. To achieve this, the CFO seeks you to answer specific questions, but also to outline the development of your answers sufficiently to allow a reader to understand why you have developed your answers.

Question 1) - (5 marks) 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 UNE 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

Question 1a) Explain 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.

Question 1b) Determine if the creation of the program represents development or research expenditure, using the criteria you have identified in question 1a, and explain how the funds spent on the creation of the program should be accounted for (you do NOT need to provide any journal entries!)