Question

Distinguish between normal loss and abnormal loss with examples. What procedure
is followed for valuation of closing stock when the abnormal and normal losses occur
simultaneously?

Answer 1

Normal loss is what happens to the product while the production is going on for example shrinkage or if the fabric is worn off. And because of the normal loss the cost tend to increases and result in the increased cost of production.
The abnormal loss is the one which results when something happens accidentally, for example, the machinery breaks down or the working conditions are not favorable resulting in the low quality of work, the abnormal loss is treated in the profit and loss account.

The value of abnormal loss: (normal cost of output/normal output) x Abnormal loss quantity.