On 1 October 2014 Iota began a project that sought to develop a more efficient method of organising its production. Costs of $10 million were incurred in the year to 30 September 2015 and debited to the statement of comprehensive income in that year. In the current year the results of the project were extremely encouraging and on 1 April 2016 the directors of Iota were able to demonstrate that the project would generate substantial economic benefits for the group from 31 March 2017 onwards as its technical feasibility and commercial viability were clearly evident. Throughout the year to 30 September 2016 Iota spent 500 000 per month on the project.
a) Explore the criteria that need to be satisfied before expenditure on intangible items can be recognised in the statement of financial position as intangible assets. [12 marks]
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b) Explain how the above transactions should be recognised in the financial statements of Iota for the year ending 30 September 2016. [13 marks]