I'm working on a client in the Agriculture industry. The client incurs R&D expenses
and develops various types of seeds which are then sent to farmers (Let's refer
to these seeds developed through research as foundation seeds).
These farmers plant and grow these seeds on behalf of the company. During this
process of growing they ensure that the pollination of these plants happen in a
such a way that Hybrid seeds are created (Let's call these hybrid seeds as Raw
These raw seeds are then sent back to the company who process the same
further (cleaning etc.) and then sell the same in the open market (Let's call these
the processed seeds)
Points to Note:
1.R&D expenditure is the only major expenditure that is incurred for the
production of the foundation seeds.
2. The company considers these foundation seeds developed as the Raw
3. AS26 has already been referred to and the "Research" portion of the expenses
incurred for the development of the foundation seeds shall be charged off
1. Can the Development expenses (Research expenses will be immediately
charged off as per AS26) incurred for the development of the foundation seeds
be included as cost for the valuation of the inventory of foundation seeds?