Also, how does abnormal gain affect our profit since we debit it to the process account? If costs incurred was for example $ 29070, Abnormal gain $ 1615, Total in process account debited is thus $ 30 685. I don’t understand what the total of $ 30 685 means. Did our costs increase? Did it decrease our profit? Did we thus have an abnormal gain that decreased our profits? What does it mean to say that Abnormal gain becomes a negative cost?
↧
By: elle
↧
By: John Moffat
How can a gain mean less profit???
We debit the process account with the abnormal gain, and credit the Income Statement. This increases the profit.
↧
↧
By: elle
So why is it debited along with Costs incurred in the Process account?
↧
By: John Moffat
The abnormal gain or loss is effectively the ‘missing figure’ on the account. If less units come out than went in, we have an abnormal loss and the missing figure is on the credit side; if more units come out then we have an abnormal gain and the missing figure is on the debit side.
Whether it is abnormal gain or loss, it is valued at full cost per unit, and the double entry will be to the Statement of Profit or Loss.
I really would not worry too much about the t-account. Management accounting is not really about t-accounts. More important is the costing of the output, and the gains or losses.
↧
By: Munazza
Can you please check my answer:
W&B Ltd produce a breakfast cereal that involves several processes. At each stage in the process, ingredients are added, until the final stage of production when the cereal is boxed up ready to be sold.
In Process 2, W&B Ltd have initiated a quality control inspection. This inspection takes place before any new ingredients are added into Process 2. The inspection is expected to yield a normal losses of 5% of the input from Process 1. These losses are sold at $1 per kg.
Following information is for Process 2 for the period just ended:
Units $
Transfer From Process 1 500 kg 750
Material Added in Process 2 300 kg 300
Labour 200 hrs 800
OH – 500
Actual Output 755 Kg
Required: Prepare the process , abnormal Loss and gain and Scrap Acc. for process 2 for the period just ended.
Solution:
Kg Amount Kg Amount
Input from Process 1 500 750 Normal Loss 25 25
Material 300 300 Abnormal Loss 20 60
Labour 800 Finished Good 755 2265
OH 500
800 2350 800 2350
Avg. Cost Per Unit: 3
2:
Kg Amount Kg Amount
Input from Process 1 500 750 Normal Loss 25 25
Material 300 300 Abnormal Loss 20 30 (At Process 1 Cost)
Labour 800 Finished Good 755 2295
OH 500
800 2350 800 2350
Avg. Cost Per Unit: 3.04
I am confused do we need to calculated the average cost after deducting the all the losses actual amount of at NO-Total/Expected No of Output.
Please help me..
↧
↧
By: John Moffat
Please cut and paste this to the F2 Ask the Tutor Forum. This space is for comments on the actual lecture.
↧
By: Osama
Sir it might sound silly but in the loss a/c when u write abnormal gain as 1760, why do not we write gain’s net value that was 1400 apart from the reason we copy it from the process a/c in which gain is 1760.
↧
By: John Moffat
Because the debits have to equal the credits 
↧
By: Osama
And sir i never do understand the double entries of management accounting so i just somehow make sense out of them so is it ok?
I mean management accounting doesn’t even follow double entry rules properly according to me.
↧
↧
By: Osama
Like in process account or loss account they just abandon the double entry rules.
↧
By: Osama
And sir i never do understand the double entries of management accounting so i just somehow make sense out of them so is it ok?
I mean management accounting doesn’t even follow double entry rules properly.
Like in process account or loss account they just abandon the double entry rules of F3.
↧
By: alfred644g
i hope i wont be wrong if i did this in my exam so as to save time
On abnormal gains
if the total cost is 5000 after deducting the normal loses is $4000 and the general out put is 1800 units while the expected output was is 1700 units.Instead of doing the whole process i can simply calculate the gain which is also the loss on the gains of scrap value by multiplying it with the scrap value and adding it to the full production value that it incurs which is credited in the loss a/c.
↧
By: John Moffat
That is fine.
In the exam nobody will look at your workings – a computer will mark whether or not you chose the correct answer – so how you get the answer is fine 🙂
↧
↧
By: Sammar
I wanted to ask that during valuation of output why don’t we add abnormal gain to the cost as well. The abnormal gain is the cost that didn’t go wasted as we anticipated. Shouldn’t that, combined with the cost we calculated, be the actual valuation of the product??
Like in question 6 shouldn’t we go further in our calculations to get the valuation of output:
Abnormal gain = 200u x $7.60
= 1520
Less: Lost scrap money
200u x $1.50 = 300
Profit = 1520 – 300 = 1220
Value of the units = $1220 + $20520 = $21740.
↧
By: John Moffat
No. Output is valued based on the expected production.
Some months there will be an abnormal loss and some months there will be an abnormal gain. The abnormal loss or gain will appear as a separate item in the profit statement – we do not keep changing the unit cost because of it.
↧
By: Sammar
Right, thanks!!
↧
By: John Moffat
You are welcome 🙂
↧
↧
By: mohita352
Sir can I get more question of this chapter
↧
By: elle
Thank you 🙂
↧
By: John Moffat
You need to buy a Revision Kit from one of the ACCA approved publishers – they contain lots of exam standard questions to practice on, and practice is vital. You should not attempt the exam without having bought a Revision Kit and practiced every question in it.
↧