Material worth Rs. 300 were wasted in the process of work at contract and sold for Rs. 100 only.
What should be the treatment ?
Can i treat it as a cost of Contract or i should exclude it by crediting the same. Actually I have gone through the situation where both Rs. 300 and Rs. 100 were in Credit side of Contract A/c. Is it correct ? if yes then why ? Please help me out...........
Since the material amount of Rs. 300 shows that it is a Abnormal loss,therfore it is appearing in the credit side of Contract account. When so there shall be opened a seperate ledger for Abnormal loss and the amount recovered from sale of waste part shall be credit to Abnormal loss Account...finally the balancing figure shall be transffered to "Coting P/L Account" or to the particular "Contract P/L Acoc*nt."
If the material loss if of normal type, then it will not come anywhere in the books and the amount recovered from sale of scrap shall be put to the creidit side of contract account to reduce the cost.
Therefore the given entry is incorrect,since both are appearing at the credit side of contract account.
Thanks for reply vineet.........
it is normal loss so the scrap value is appear in contract a/c credit side only.
Agreed with Vineet Sir.
As u occur loss while contract is going on, u've to book it to that contract only as abnormal loss to the extent of 200/-(300-100) only, coz you can reduce your abnormal loss from the receipts of scrap sale. We can reduce our loss with the receipts of those.
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