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      Question

      In a process costing system, actual loss was lower than

      the normal loss estimated. The accountant identifies an abnormal gain. Which of the following correctly states the accounting treatment of abnormal loss and abnormal gain?
      A Both abnormal loss and abnormal gain are absorbed into the cost of good units Correct Answer Incorrect Answer
      B Both Abnormal loss and abnormal gain are transferred to Costing Profit & Loss Account Correct Answer Incorrect Answer
      C Both abnormal loss and abnormal gain are treated as factory overheads Correct Answer Incorrect Answer
      D Abnormal loss is capitalised, while abnormal gain is taken to revaluation reserve as unrealized profit Correct Answer Incorrect Answer
      E Both abnormal loss and abnormal gain are treated as normal process cost Correct Answer Incorrect Answer

      Solution

      Abnormal Loss is unexpected/avoidable loss. It is not part of normal production and therefore should not increase product cost. It is therefore debited to Costing P&L A/c.   Abnormal Gain occurs when actual loss < normal loss. This is extra good units produced. It is credited to Costing P&L A/c   Note – Normal loss is absorbed in process cost directly. If there is any earnings from normal loss like normal loss units can be sold as scrap, the scrap value income will be deducted from process cost

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