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Accounting Tratment for normal loss

Guhanadh (Inter 1st Year) (62 Points)

23 April 2009

I want to know Accounting treatment for following

Client business is Petro Chemicals. He has to deliver Petrol to Customer. When loading to Tank (Think it is 100lts Capacity). But when it is reached to Customer the capacity is 95 Lts.

What treatment shall i take in my books for 5Lts. Under what account head i have to take. What is the account head type. What is the treatment for Year end.

With Regards

Guhanadh

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10 Replies

Rupesh Jha (M.Com CA PhD* and MBA*) (1116 Points)
Replied 23 April 2009

HI, I THINK ENTRY WILL BE:-

(1) CLINT'S A/C ..............DR.(100LTR)

TO SALES A/C(100LTR)

(2) LOSS IN TRANSIT A/C (OR,SALES A/C)................DR(5LTR)

TO CLINT'S A/C(5LTR)

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Guhanadh (Inter 1st Year) (62 Points)
Replied 23 April 2009

Hi Rupesh... Thanks for Reply

What is Clints A/c

The Loss is not due to Business Activities. It is due to Operational Activities. I can not Treat that 5Lts in Revenue because it will increase Revenue but no cash will be realised.

Suppose if i consider Loss in Transit, it is consider as trading loss. So shall i consider it as Tarading loss. Is it Correct Treatment What i said

Vibhash Kumar Sah (CA) (73 Points)
Replied 23 April 2009

Originally posted by :Guhanadh
"		"

hi, when u depatch materials out of our unit, u have to raise the invoice. As u mentioned, when the tank reached to customer, it was only then found that the material is less than what delivered. so according to me, what u have to raise bill with full value and after the confirmation from the party a credit note should be given to the party.

Thanks & Regards

Vibhash Sah

adula... (student) (550 Points)
Replied 23 April 2009

i thought normal loss have no accounting entry

entry only if it is abnormal loss

(Guest)

there is always a fixed percent of normal loss on sale of goods... but if loss is higher than that limit it will be charged to P&L as an abnormal loss .. else there is no entry for normal loss.....

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Guhanadh (Inter 1st Year) (62 Points)
Replied 23 April 2009

Hi Sanyam

May i know what accounting head i have to crearte for both Normal Loss and Abnormal Loss. What is the treatment for year end.

Thanks

Guhanadh (Inter 1st Year) (62 Points)
Replied 24 April 2009

Hi Sanyam

May i know what accounting head i have to crearte for both Normal Loss and Abnormal Loss. What is the treatment for year end.

Thanks

CA. Amit Daga (Finance Controller CA. CS. CFA. CIFRS. M.COM. ) (9017 Points)
Replied 24 April 2009

hey guys its normal loss.. trading account is dealing with the trading activities.. so wat are goods coming and wat are going that will be come under trading acount and loss due to likerage you are showing in the pl..

Rupesh Jha (M.Com CA PhD* and MBA*) (1116 Points)
Replied 24 April 2009

AFTER GIVING MY EARLIER ENTRY, GIVE THE EFFECT OF LOSS IN TRANSIT(NORMAL LOSS) IN THE VALUTION OF CLOSING STOCK,YOUR CLOSING STOCK WILL BE INCREASED BY NORMAL LOSS AT THE END OF YEAR.

Manish Bajaj (CA) (47 Points)
Replied 24 April 2009

Normal Loss due to evaporation in the Petro Chemical Business is inevitable and is incidental to carrying on the business.

In my opinion - The Cost of the units received should be inflated to the extent that they cover up for the lost units. Eg: Cost of 100 Ltr - Rs. 5000. Lost in Transit 5 Ltr. So the Total Cost of 95 units (100-5) should be 5000. The per unit cost (in this case per litre) will then stand inflated automatically. It was Rs.50 per Litre (Rs.5000/100) before adjustment. After adjustment the per litre cost will stand inflated at Rs. 52.63 per liter (Rs.5000/95).