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CMA Intermediate · Cost Accounting · Cost Accounting Standards (CAS 1 to CAS 24)

A firm in Pune produces 10,000 units and 400 units of scrap arise as normal waste during production, with a resale value of ₹5 per unit. Under CAS 21 (Loss) the treatment of the normal loss is best described as:

Normal loss is absorbed by good output, and the realisable value of the scrap, 400 units at ₹5 equals ₹2,000, is credited against the cost. Only abnormal loss is charged to costing profit and loss, so treating it as abnormal or ignoring the scrap value would be wrong.

  1. AIts cost is absorbed by the good units, net of realisable value of ₹2,000 of the scrapCorrect
  2. BIts cost is charged to costing profit and loss as abnormal loss
  3. CIts cost is ignored and the scrap value is not credited anywhere
  4. DIts cost is added to opening stock of work in progress only

Explanation

CAS 21 states that normal loss is absorbed by the good production, with the realisable value of the lost units (400 x ₹5 = ₹2,000) credited to the process cost. Abnormal loss is separately charged to costing profit and loss.

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