Normal process loss and abnormal process loss

 NORMAL PROCESS LOSS

• Normal loss cannot be avoided.

• This loss is due to nature of the goods such as evaporation, loss weight, drying etc.

• This loss is not calculated separately.

• Normal loss cannot be insured.

• No separate journal entries are posted to show the normal loss.

• The value of remaining goods/units is inflated by the cost of such loss as under: Value of closing stock={Total Cost/ (Total quantity-normal loss quantity)}* unsold stock

• Cost of normal loss is borne by the remaining goods.

• It is treated as a part of cost. 

ABNORMAL LOSSES :

• Abnormal Loss is avoidable account of precautions.

• This loss arises due to of external reasons like loss by theft, fire, carelessness etc.

• Value of abnormal loss is calculated in the same manner as the value of stock on consignment.

• Abnormal loss can be insured.

• Proper journal entries are required to be made to treat the abnormal loss in consignor’s books.

• The value of abnormal loss is credited to consignment account in order to calculate the normal profit or loss on consignment 

• Cost of abnormal losses is not borne by remaining goods.

• It is charged to profit, and loss account not being treated as a part of cost.

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