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  1. would the exam ask about an entry (although accounting entries questions are rare) about scrap account? – my kaplan book has another account called scrap account which is kind of confusing what the entries are.

  2. why do you credit the normal loss and abnormal loss in the process account but debit it in the loss account?

    what does the process account record? is it an expense account? is it recording the flow of where the money spent on the materials is going into?

    what exactly is a process account? and what does putting an entry as a credit in the process account stand for?

    • I make it very clear in the lectures that the account itself is not very important for the exam – you cannot be asked to write up an account, but you just could possibly be asked one or two of the entries. What is important for the exam is to calculate the costs per unit and for this you do not need an account (as again I explain in the lectures).

      All the account is doing is keeping track of what is happening to the units and sorting out the cost of the units.

      We credit the account with losses and debit the loss account simply again to keep track of what happens to the units that go in, and to keep track of what happens to the ‘losses’ (i.e. whether they are thrown away or are sold).

      A credit in the process account does not ‘stand for’ anything – it simply is a way of recording again what happens to the units.

      • thanks for your explanation it makes more sense now. just to check – it is recording what inputs there were (debit) and recording what happens to those input in terms of units (credit)?

        I have another question about abnormal gain – my kaplan book does not total the unit with the abnormal gain figure, (i.e made 1000 units but there was an abnormal gain of 20, but the total is 1000 not 1020) is this correct? surely it should be added on right?

      • If they made 1,000 units then they made 1,000 units!!

        If there is an abnormal gain of 20 units then it must mean that they had only expected to make 980 units.

    • Because when we calculate the cost per unit, we only ever take into account the normal loss. (If we took into account the abnormal loss or gain then the cost per unit would keep changing every period.)
      The abnormal gain or loss is then costed at the full cost per unit.

      • Nice lectures, though i still wonder why in the loss account the 50kg loss was valued at the normal scrap value of $9 which was the abnormal loss or unexpected loss but when deducted it was valued at full cost per unit.

        50kg * $44 = 2200

        50kg * $9 = 450
        total loss $1750

        value in the loss account was $1350…. here both normal loss and abnormal loss were calculated to get 150* $9.. just do not get the mathematical theory of this.

      • There is no mathematical theory involved!

        The abnormal losses are charged at full unit cost.
        The final loss resulting is the difference between the full unit cost and whatever money is received from selling them as scrap.

  7. Good evening, thank you again for great help. I was just wondering about loss account, I thought it is a scrap account – where in debit we write normal loss+ abnormal loss and on credit cash we expect to receive from selling. And in loss account we in debit put unexpected loss and in credit amount that goes to income statement

    • What you say is correct, except for your last sentence. The unexpected loss is the same as the abnormal loss, so we do not enter it twice.
      It is the balance on the loss account that gets transferred to the income statement.

      (However don’t be too worried about the debits and credits – they are very unlikely to be needed in the exam itself)

  8. Hi there. I didn麓t understand the T account, why don麓t we put the scrap money we get from the 50kg on the right side of the Process account like we did with the 100kg?

    • Have you watched the lecture in full (because around 12 minutes into the lecture you should find the answer to your question!!)

      Abnormal losses are always valued in the process account at full cost per unit (in this case $44).
      The net loss to appear in the profit statement as a result of the abnormal loss is the value of the losses less the extra scrap proceeds that we receive from them – which comes to 1750.

  11. Dear Sir,

    Thank you for another great lecture. May I ask you something specific to your lecture? At 05:27 you state that “if they ask you for the cost per unit you ‘re finished”. Which is $44 p.u. Is this true even though there is another further abnormal loss? This might be clarified later in the lecture.

  12. Sir pl
    Help me with this question on process costing
    A company expect normal
    Loss of 10% of input in a process
    Mat. Input 400 liter $8
    Conversion cost $4800 output 330 liter,
    Losses are identified when the process is 60% complete. There was no opening or closing wip
    What is the value of the completed output?
    Pl. help not sure how to work the problem with the 60% complete

  13. Hello Sir. First of all thank you very much for your lectures. I believe I might have a little out of the box question here though. I understand with expected (normal) loss, at times you get to sell back these units at a scrap value, which you would then minus this amount from the cost of the process, then you calculate, the cost per unit, by dividing total cost of the process by expected output. But won鈥檛 it be prudent not to minus this sale of scrap units from the total cost of the process until you get this sale, because you might not get this sale?

    • If we were preparing financial accounts then you would have a point, and prudence is relevant.
      However the purpose of management accounting is not to calculate the profit that has been made in the past, but make decisions for the future. For example, to help decide on a selling price we need to estimate what the cost is likely to be. To be able to prepare budgets for next year we need to estimate what the costs are likely to be.
      So, in estimating the costs we not only need to estimate how much we will have to spend but also need to estimate how much we expect to receive back from scrap.

    • Sir my Question may be silly for U, but I really need an answer… I somehow want to get a world prize for any units in ACCA…
      Sir How hard should I work?… Im ready to study even 10hrs a day
      Sometimes things are forgetting especially F1 notes….
      Its not sticking into the mind..
      Pls help me sir, How did u manage these constraints?

      • The best and only advice I can give you is practice. You must have Revision/Exam Kits from one of the approved publishers (they contain lots of exam-standard questions) and you must practice and practice and practice.
        When you are confident that you can get the questions right, then you must practice them again under time pressure.
        With the first three papers, one of the biggest problems is the time pressure in the exam – it is when you are rushing in the exam that you misread questions and make silly mistakes, however good you may be at the subject.

  15. You are correct that the total loss is 15%, but it is 15% of the input (not the output).

    So….for every 100 litres input it would mean 15 are lost and therefore 85 are output.
    Or (putting it the other way round) for every 85 output there must be 100 input.

    For 340 output therefore, the input must be 340 x 100/85 = 400 litres.
    Now you will find it works 馃檪

    Hope that helps!

  16. Hi, I am practicing some questions and I got stuck at this particular one. It seems easy but I am not confident if my ans was right.

    “A company needs to produce 340 litres of chemical X. There is a normal loss of 10% of the material input into the process. During a given month, the company did produce 340 litres of good production although there was an abnormal loss of 5% of the material input into the process. How many litres of material were input into the process during the month?”

    a) 357 litres
    b) 375 litres
    c) 391 litres
    d) 400 litres

    I tried doing it backwards by using 340 x 1.15 = 391. But when I used 391 x 0.75, the ans (output) does not tally to 340. Pls help!

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