Treatment of Normal Loss 💧

Definition: Loss that is unavoidable and inherent to the nature of goods.

• Examples: Evaporation of Petrol, Leakage of Oil, Drying of Coal (Weight loss).

Accounting Treatment:

• No Journal Entry is passed.
• Instead, we inflate the cost per unit of the remaining good units.
• Logic: The good units must bear the cost of the lost units.

Formula for Stock Valuation 🧮

Formula:

Value of Stock = (Total Cost + Total Direct Expenses) / (Total Units - Normal Loss Units) × Unsold Units

Example ⛽

• Sent: 1000 Liters Oil @ ₹10. Total Cost = ₹10,000.
• Expenses: ₹1,000.
• Normal Loss: 100 Liters (Leakage).
• Unsold: 200 Liters.

Valuation:

• Total Cost + Exp = 10,000 + 1,000 = ₹11,000.
• Good Units = 1000 - 100 = 900 Liters.
• New Cost per Liter = 11,000 / 900 = ₹12.22.
• Value of Unsold Stock = 200 × 12.22 = ₹2,444.

(Notice: Cost increased from ₹10 to ₹12.22).

Quiz Time! 🎯

💡 Final Wisdom: "If you buy 12 eggs and 2 break normally, the price of the omelet goes up. That's Normal Loss logic." 🍳

Next up: Abnormal Loss - Fire and Theft! 🔥