Treatment Of Normal Loss And Abnormal Loss In Accounting For Branch

Accounting Treatment Of Normal Loss

The normal loss is a loss of natural phenomena. It is an unavoidable loss. Some examples of normal loss are evaporation, shrinkage, leakage, shortage, drying etc. No entry is required for normal loss. So the total cost of goods sent to branch becomes the goods received and normal loss unit is the difference between total number of goods sent and physically received units.

Accounting Treatment Of Abnormal Loss

The loss of goods sent by the head office to branch which is caused by avoidable abnormal condition or carelessness is called the abnormal loss, for example loss of goods by theft, fire, riots, accident etc. The abnormal loss should be charged to profit and loss account. It is calculated as under:
A. Cost of goods sent.........................................................................XXX
B. Add: Non-recurring expenses up to point of loss............................XXX
Total cost of goods sent (A+B) ............................XXX

Abnormal Loss = (Total cost of goods sent/Total units of goods sent) X Loss Unit

Journal entries for abnormal loss

a. If there is no insurance coverage for the goods sent to branch:
Abnormal loss A/C ...............Dr.
To branch A/c

General profit and loss A/C............Dr.
To Abnormal loss A/C

b. If there is a policy coverage for the goods sent to branch:
Abnormal loss A/C ..................Dr.
To branch A/C

Bank A/C..................Dr.
General profit and loss A/C..........Dr.

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