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:

the loss in the quantity of goods in the normal going business due to some unavoidable actions such as during the shipment of goods, packing or loading of goods. 

Abnormal loss:

The type of loss which occurs due to some unfortunate incidence which can be avoided such as fire, or some other accidents. 

for the valuation these steps are followed:

Find Purchase Cost = 1
1-Tax Credits =2
2+Freights=3
Transit Loss Normal = Find as purchase quantity ‘s 
3/ quantity -4 =5 (Normal Rate )
Abnormal Loss = Qty & Value (use the rate found in the 5)=6
Consumption (Used x 5)=7
Cost of Inventory =3–6–7

Answer 2

Normal loss is the expected loss or the loss which is anticipated prior to the production. For example, shrinkage, evaporation, rusting etc. Normal loss increases the cost of production because when the cost is being recovered it results in the higher cost of production.


Abnormal loss is the one which is not realized and arises because of bad working conditions, carelessness, rough handling, lack of knowledge, machine breakdown, accident etc. And the abnormal loss is assessed on the basis of production cost where profit and loss account is charged. 

Value of Abnormal loss: (normal cost of normal output/normal output) x Abnormal loss quantity.