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CMA Foundation · Fundamentals of Financial and Cost Accounting · Consignment

Which of the following is an example of a normal loss on consignment that is NOT separately charged to the Consignment Account as a loss but is absorbed into the cost of remaining goods?

Natural evaporation or shrinkage is a normal loss, so its cost is absorbed in the remaining goods and raises per-unit cost. Train accidents, theft and fire are abnormal losses, which are taken out of the Consignment Account and charged to Profit and Loss or the insurer.

  1. ALoss of goods in transit due to a train accident
  2. BLoss of goods by theft at the consignee's godown
  3. CLoss due to natural evaporation or shrinkage inherent in the goodsCorrect
  4. DLoss of goods by fire in the consignee's warehouse

Explanation

Normal loss arises from the nature of the goods, such as evaporation or breakage in handling. Its cost is spread over the good units, raising the per-unit cost. Accidents, theft and fire are abnormal losses, credited to Consignment Account and charged to Profit and Loss or claimed from the insurer.

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