Abnormal spoilage or defective work may arise in a process due to unforeseen factors. The cost of such abnormal loss is not included in the cost of the process but the average cost of the lost units is charged to an Abnormal Loss Account which is credited with the scrap and closed to the Profit and Loss Account. Thus, in computing the abnormal loss, scrap value of the abnormal lost units will be ignored but in working out the loss for charging to Profit and Loss Account, this will be taken into consideration.
Sometimes, when the actual loss in a process is less than the anticipated loss, the difference between the two is considered to be abnormal gain. The value of the abnormal gain is calculated in the same way as described above for abnormal loss and is credited to an Abnormal Gain Account which is ultimately closed. Profit and Loss Account. The scrap value of the normal anticipated loss in the process where abnormal gain occurs is credited to the process account with the result that the net debit to the process is the cost of abnormal gain less the value of scrap for the normal loss.
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