Some losses are accidental or can be caused by carelessness. Abnormal spoilage exceeds the normal or expected rate of spoilage. Cost and Management Accounting 98 Abnormal gain or effectiveness The normal process loss represents the loss that would be expected under normal conditions. Transfer to P L ac.

Accounting for an abnormal loss An abnormal loss is a cost to your business. An account by name Abnormal Loss is used for holding the value of this asset. Such losses are more or less abnormal and in.

All those losses which are not normal will be the abnormal loss. The value loss of stock lost on account of abnormal reasons should not be absorbed by the good stock. Normal Cost Total Cost Cost of Abnormal Loss Units.

Following are its main example. So use of bad quality raw material is the reason of abnormal loss. From accounting point of view we can say that abnormal loss is that loss which occurred over and above normal loss. Net Output Units Gross Input Units Abnormal Loss Units Abnormal loss in quantity terms should be deducted from the gross input to obtain Net Output.

This loss is not calculated separately. Types of commission paid by the consignor to consignee. The loss of goods sent by the head office to branch which is caused by avoidable abnormal condition or carelessness is called the abnormal loss for example loss of goods by theft fire riots accident etc.

The value of the stock is inflated so as to cover the normal loss whereas the value of the stock remains unaffected in case of abnormal loss. Value of abnormal loss is calculated in the same manner as the value of stock on consignment. Abnormal Loss is avoidable o account of precautions.

Unlike normal loss the abnormal loss is transferred to the Costing Profit and Loss Account CPLA. It is charged to the Profit Loss ac. While the abnormal loss is insurable the normal loss is non-insurable. All abnormal losses are charged against Profit Loss Account.

Destruction of goods by fire an accident or theft. As a result abnormal spoilage isnt included as a product cost. Treatment of Abnormal Loss in Process Accounts All those losses which happen due to abnormal reasons are called abnormal losses.

So the entry is Goods Lost by Fire Ac PL Expense Ac Dr. This loss arises due to external reasons like loss by theft fire carelessness etc. Abnormal Loss – Accounting Treatment The rate column is always to be obtained as a quotient using the relation Value Quantity.

Normal Loss Realisable Rate Per unit The rate at which the normal loss units can be sold. This loss is due to nature of the goods such as evaporation loss of weight drying etc. If the actual loss is greater than normal loss it is known as abnormal loss. For treating the abnormal loss in the process account we need to calculate the value of abnormal loss.

Amount of abnormal loss credited to Consignment account. When you sign up to one of Debitoors larger plans not only can you track your expenses but you can also generate profit and loss reports based on the data that you provide. Abnormal loss stock is an asset whose value is degraded.

The actual loss may be greater or less than the normal loss. In case of abnormal loss in transit the proportionate expenses of consignee are not added. A When there is not any normal loss Abnormal loss Normal cost at normal production normal output X units of abnormal loss.

It is calculated as under. What is Abnormal Gain. To ascertain the cost of goods sold the value of stock used for purposes other than trading has to be deducted from the total value of goods by crediting one of the following ledger accounts. The goal is for each equivalent unit to have the same amount of costs attached to it.

Trading ac Cost of Goods Sold ac Purchases ac. It includes stock destroyed by fire goods lost in transit etc. The abnormal loss is avoidable in nature and generally arises due to reasons like fire theft accident or flood etc.

This type of loss is an avoidable loss because it does not arise due to the nature of the goods. 7 rows Abnormal loss in cost accounting is the loss that occurs over and above normal loss. Balance of abnormal loss transferred to profit and loss account.

Insurance claim is credited to abnormal loss account. Your accountant will put the cost in a loss account separate from costs of manufacturing. If you use bad quality raw material in the production there is big risk of wastage in production. It should therefore be treated as an expense and shown on your income statement.

It is an estimated figure. The value of good stock would be 100 per unit and is not influenced by the abnormal loss. Abnormal Loss or Gain Since AOU NOU there is abnormal loss Abnormal Loss Units Valuations Total Cost The total amount of debits made to the process account.

NLRRU 3unit Normal Loss Realisation Normal Cost Normal Cost of Normal Output per unit. The organisation would make efforts to liquidate this asset in a number of different ways like selling the salvaged stock get insurance realisation etc. So loss of 5 units is the abnormal loss.

The abnormal loss should be charged to profit and loss account. But if actual loss is less than normal loss a gain is obtained. In general when the goods are lost by fire or are stolen etc the cost of such goods is credited to the Trading Account because loss arising from such event is abnormal in nature and such abnormality should not distort the gross profit percentage as would normally be observed.