Q89. What is normal loss, abnormal loss and abnormal gain in process costing?
Normal Loss: Loss of some quantity of input is inherit in the production process. It is called normal loss. Loss is considered normal when two conditions are satisfied which is as follows:
- It cannot be controlled.
- It is predetermined.
Quantity of normal losses is credited into Process account. If any amount is released then it is also credited into such an account.
Abnormal Loss: If actual loss acceded to normal loss than exceed loss is abnormal loss. Such loss is valued at normal rate. Any amount realized from such loss is credited to such valuation and balance is transferred to costing profit and loss account.
Abnormal Gain: If actual loss is less than normal loss, then it is abnormal gain. It is debited to process account. The valuation of abnormal gain is same as the valuation of abnormal loss. It is transferred into costing profit and loss account after adjusting normal loss value of such quantity.