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Spoiled food - normal loss ?

25 February 2023

does spoiled food, fruits and eatable at restaurant is considered as normal loss ? if not what will be the accounting treatment for it?

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7 Replies

Ayush (Executive ) (6990 Points)
Replied 25 February 2023

Spoiled food, fruits, and other eatables at a restaurant are typically not considered normal loss in accounting terms. Normal loss is a term used in manufacturing industries to account for the loss of raw materials during the manufacturing process, such as the loss of some material in the production of a finished product.

It is usually considered abnormal loss, as it arises due to factors such as improper storage, handling, or cooking. Abnormal losses are not a regular part of the business process and can be minimized through appropriate controls and procedures.

In terms of accounting treatment, the spoiled food would be recorded as an expense and deducted from the restaurant's income.

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Samarth Pachchigar (68 Points)
Replied 25 February 2023

In the restaurant business the spoilage of food, fruits and eatables is very common like it's a routine for the business so it will be a normal loss if the spoilage is within an limit as set by previous operations however if the spoilage exceeds the normal limit then it can be termed as abnormal loss and shall be accounted for the same as the spoilage won't realise and money so i won't have any impact on profit of the business as restaurant in layman terms buy groceries add value to it by cooking and sell it for profit and net profit is gross profit less all operating and non operational cost so spoiled food will be treated as normal loss

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Yasaswi Gomes new (Finance ) (4545 Points)
Replied 26 February 2023

total number of spoiled units, divided by the total units produced, and multiplied by 100. In this case, it would be 500 / 10,000 x 100 = 5%

Generally companies create an cost expectation and not provisions because AS 29.55 suggests that future operating losses are not provisions.

You can find other methods of treating spoilage in cost professional accounting books.

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Yasaswi Gomes new (Finance ) (4545 Points)
Replied 26 February 2023

As 2 suggests normal waste is a cost of inventory.

Since you have thrown away inventory without selling it, the percentage will be written off obselete inventory.

You can find as 2 online.

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Samarth Pachchigar (68 Points)
Replied 26 February 2023

Yes no provision would be treated but it will be a normal loss for business as it is being incurred in the normal course of business only and if the loss of spoilage is more than the limit established by previous business operations then only it will be recorded as abnormal loss as it is a day to day thing for restaurants and it is not due to any inadequate storage or poor policy.

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Atharv Sankliya (1356 Points)
Replied 26 February 2023

Thank you sir/ma'am