3.7 Treatment of Normal Loss, Abnormal Loss and Abnormal Gain
3.7.1 Normal Loss
This is the loss which is unavoidable in certain processes. This loss arises on
account of the inherent nature of the materials. The loss may arise on account of
evaporation, shrinkage, loss of weight on account of moisture loss etc. The normal
loss causes the quantity of the output to be lesser than the quantity of input.
The amount of the normal loss is transferred to the good units, and thereby the cost
of the good units is inflated.
This is done by crediting the quantity of normal loss to the process accounts,
without crediting the process account with the value of normal loss. This treatment
ensures that the cost of normal loss is borne by the good units. If the units of
normal loss can be sold at any price (scrap value), such an amount is also credited
to the process account along with the quantity of the normal loss.
Method of calculating the value per good unit, in the presence of normal loss.
Total cost of the process – scrap value of normal loss if any
Total quantity of input into the process – Normal loss quantity
Normal cost of normal output
A process industry can always calculate the quantity as well as scrap value of the
normal loss based on its past experience with the material and also some technical
The normal loss if has a saleable value is transferred (debited) to the normal loss
account. This account is closed by crediting it with the sale value of the normal
3.7.2 Abnormal Loss
The abnormal loss occurs in an industry in account of unexpected or abnormal
conditions such as carelessness of the workers, machine breakdown because of
bad maintenance, inferior quality of raw materials, accidents, untrained workers,
lack of supervision etc. All these factors are avoidable. Abnormal loss is also the
excess of actual loss over normal loss.
Treatment of Abnormal Loss
a) The number of units of abnormal loss is calculated as follows:
Abnormal loss = Actual loss – Normal loss or
Abnormal loss = Normal output – Actual output
b) The abnormal loss is valued as under:
Abnormal loss units are valued as normal or good units. Their value is
calculated as follows:
Normal cost of normal output x Units of abnormal loss
The number of units and value of abnormal loss are credited to the process account.
The same are credited to the abnormal loss account.
The abnormal loss account is closed by being transferred to the costing profit and
loss account. If the units of abnormal loss have any scrap value, such scrap value
as realized is credited to the abnormal loss account and the balance is transferred to
the costing profit and loss account.
3.7.3 Abnormal gain
Abnormal gain occurs when the actual loss is lesser than the normal loss. Normal
loss is only an estimate and the actual loss may not be always equal to normal loss.
Normal loss also results in the actual output being greater than the normal output.
Since the actual output is greater than the normal output, the excess is called
Treatment of abnormal gain
a) The number of units of abnormal gain is calculated as follows:
Abnormal gain = Actual output – Normal output
Abnormal gain = Normal loss – Actual loss.
b) The abnormal gain is valued as follows:
Abnormal gain units are valued as normal units. Their value is calculated as
Normal cost of normal output x units o abnormal gain
The value of abnormal gain should not affect the normal units.
The value and units of abnormal gain, so calculated are debited to the process
account and credited to the abnormal gain account.
Since abnormal gain results in the actual output being more than the normal
output, it causes a part of the normal loss to become good units. As a result of
this, the scrap realization of the normal loss is lesser than the expected
amount. This difference in the normal loss account is credited to the normal
loss account and debited to the abnormal gain account in terms of both
amount and number of units. The balance in the abnormal gain account
represents the amount of abnormal gain and is transferred to the costing profit
and loss account.