Cost Accounting

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Meekha (Querist)
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26 December 2009 Can any one please tell me why in preparing abnormal loss account, the account is credited with cash (as sales proceeds) multiplied with scrap value of "normal wastage". and abnormal gain is credited with normal wastage- with the amount arrived by- abnormal gain (in units multiplied with scrap value of "normal loss"?

can any one please teach me the logic behind this?

CA SURENDRA KUMAR RAKHECHA

CA SURENDRA KUMAR RAKHECHA (Expert)
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27 December 2009 Suppose one Mr. Meekha is living in Amritsar. He purchased 50 kg. Coal from Delhi. Whatever top grade packing is there; the normal wastage in coal transportation cannot be avoided. Say it is 200 gms. This is normal loss. This would be treated as part of your cost.

But; if 5 kg. coal was stolen during the goods in transit; the cost of such coal cannot be considered as part of your cost. It is abnormal cost. If it is considered as normal cost; your whole cost accounting will be distrubed.

One more reason; if we reord it as abnormal cost; we will focus our attention on this abnormal cost in future so that it never happen again.

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