InnovaTech is a forward$-$thinking company focused on developing consumer products that blend innovation and sustainability.

The Modular Smart Home Hub is designed to revolutionise home automation by offering a customisable, efficient solution. The product integrates with a wide range of smart devices.

InnovaTech has a $31$ August $2025$ financial year end.

The Base Hub of the Modular Smart Home Hub was launched in June $2025.$ This introduced the concept of modularity, allowing users to start with a base hub and add individual smart modules as their smart home needs grow. Users were provided with three initial Modules that users could attach to the base hub:

$1.$ Smart Lighting Module.

$2.$ Smart Thermostat Module.

$3.$ Security Module.

InnovaTech is developing the following two smart modules, to be launched during their $2026$ financial year:

$1.$ Smart Appliance Controller Module $$ Connect and control smart appliances like refrigerators, washing machines, and coffee makers.

$2.$ Energy Efficiency Module $$ Offers advanced energy$-$saving features, including the ability to track overall energy consumption patterns and provide tips for optimisation.

InnovaTech is also busy developing an update to the Base Hub. Upon installing this update, each smart module can be easily attached and detached to the Base Hub.

Despite the early excitement surrounding the product and its potential to revolutionise the smart home market, the Chief Executive Officer $($CEO$),$ Maya Patel and Chief Financial Officer $($CFO$),$ Aaron Hayes, have raised concerns about the company's low profit margins. The profitability of its newest product, Modular Smart Home Hub, is falling short of expectations, leading to internal debates about the balance between innovation and financial sustainability. Maya Patel suggested that InnovaTech consider capitalising the expenditure incurred on developing the Modular Smart Home Hub as part of an asset, rather than recognising the amounts as expenses in profit or loss. She pointed out that the development costs have not yet been accounted for in the financial statements, giving the company an opportunity to apply this treatment in both the current and future financial periods. By capitalising these costs, InnovaTech would defer their impact on profit or loss, thereby improving reported profitability.

REQUIRED:

With reference only to the Conceptual Framework for Financial Reporting, assess whether the expenditure incurred on developing the Modular Smart Home Hub meets the definition and recognition criteria of an asset. In your discussion, evaluate whether the approach suggested by CEO would be acceptable, and identify any further information you would need to to make an appropriate determination.