Valuation of Normal/Abnormal Losses
Losses - Normal/Abnormal
Losses, based on the probability or possibility of occurrence, are classified into two, as Normal and Abnormal.
Normal Loss
Losses whose occurrence is certain are called normal losses. These occur on account of normal reasons which are inevitable and as such the name.
Normal loss relating to an activity occurs every time the activity is conducted. Normal loss relating to a period occurs in every period.
Eg: Loss on account of leakage of liquids in transportation, evaporation of liquids in storage, etc.
Abnormal Loss
Losses whose occurrence is not certain and are avoidable i.e. which occur on account of abnormal reasons are abnormal losses.
Occurrence of abnormal loss relating to an activity or time is only probable and not certain.
Eg: Loss on account of fire, accidents, theft, etc.
Identifying whether a loss is Normal or Abnormal
A loss being normal or abnormal is dependent on the particular context and the asset in consideration.
To test whether a loss is Normal or Abnormal, the question we need to consider would be - If the same activity is repeated, will there be this loss for sure?. If the answer is in the affirmative then the loss is a normal loss otherwise it is an abnormal loss.
A loss that does not occur every time the same act is carried on but only has a chance of occurrence is an abnormal loss.
Deciding nature of loss based on magnitude of loss
Deciding the nature of the loss based on the magnitude of loss is inappropriate.
To decide whether a loss of 100 kg of oil, in transporting 10 Metric Tons of oil, is normal or abnormal, we need to find the answer to the question, will this loss occur if we transport 10 MT of oil again in the same vehicle in the same route. If the answer is yes, then the loss is Normal and if the answer is no, then the loss is Abnormal.
Assumption
In problem solving, where we are not given the relevant information, we use the magnitude of loss as a guide to decide whether the loss is normal or abnormal.
100 |
10,000 |
On the assumption that 1% loss on account of leakage, is normally possible in transporting oil, we consider it to be normal loss. One should note that, just because the loss is 1%, we cannot conclude it to be a normal loss in all cases.
Net realisable or Marketable Price or Rate
Net realisable rate or price would be the price that is realised after setting off all expenses directly relatable to sale from the sale price.
Net Realisable rate
= Sale Price − Expenses directly relatable to sales
Sale commission, delivery charges, taxes on sales, etc., incurred on the goods being sold are some examples of expenses directly relatable to sales.
Eg: Sale price is 20 and brokerage is 2% of price realised.
Net realisable price
= 20 − 2% of 20
= 20 − 0.4
= 19.60
The expenses are deducted before the sale price is realised, i.e. only the net price is received by the seller. In this case, the expenses that were deducted from the sale price do not appear in the sellers books of accounts.
Cash a/c
To Sales a/c
|
Dr |
19.60 |
19.60 |
[For the sales made and the proceeds received] |
If the sale is of an asset.
Cash a/c
To Asset a/c
|
Dr |
19.60 |
19.60 |
Full price realised and expenses paid later
If the sale price is realised in full and the expenses paid later on, the total sale price is considered as the realised price and the expenses paid are treated as any other expense in relation to the sale of an asset. In such a case, the expenses show up in accounting.
Net realisable price
= 20
Brokerage
= 2% of 20
= 0.4
Cash a/c
To Sales a/c
|
Dr |
20.00 |
20.00 |
[For the sales made and the proceeds received] | |||
Brokerage a/c
To Cash a/c
|
Dr |
0.40 |
0.40 |
[For the brokerage paid on sale] |
If the sale is of an asset.
Cash a/c
To Asset a/c
|
Dr |
20.00 |
20.00 |
Asset a/c
To Cash a/c
|
Dr |
0.40 |
0.40 |
Note
The net financial effect in both the cases is the same. A net realisation of 19.60 on account of the sale.
Accounting as far as possible should reflect the physical activity.
In the second case, though a single journal entry for the net realisation may be recorded, it is not appropriate where complete information is required to be derived from the accounting system. A single entry would not provide the information relating to the fact that the total sale proceeds are received and the brokerage is paid later on.
Illustration
Consider the following data for the purpose of the explanations below.
1000 units of input stock was purchased at a store @ 100 per unit (including delivery charges). They are transported to the factory, for being used as input in a production process.
While in transit, 100 units of these were been damaged. The damaged units, sold as such, would fetch a price of 1 per unit.
Quantity and value of Loss stock and good stock
Quantity Loss
When there is a loss whether normal or abnormal, the physical quantity of the loss stock is segregated from the good stock and dealt with separately.
Particulars | Quantity | Value | Rate |
---|---|---|---|
Stock Acquired (−) Loss |
1,000 100 |
1,00,000 – |
100.00 ? |
Good/Net Stock | 900 | – | – |
Good stock
= Total Stock − Loss stock
(both in quantity and value terms)
The problem would be to decide the value to be attributed to the stock lost. If the rate at which the loss stock is to be valued can be decided upon, then the value of the loss stock can be ascertained.
Value of Loss and Good stock
The cost incurred in acquiring the 900 good units (after setting aside the 100 units lost), is dependent on the value attributed to the loss.
-
Loss valued at cost
Particulars Quantity Value Rate Stock Acquired
(−) Loss1,000
1001,00,000
10,000100.00
100.00Good/Net Stock 900 90,000 100.00 The loss units as well as the Good units are valued at 100/unit, the cost of acquisition.
-
Loss has no value
Particulars Quantity Value Rate Stock Acquired
(−) Loss1,000
1001,00,000
0100.00
0Good/Net Stock 900 1,00,000 111.11 No value is attributed to the loss units and the total cost is considered to have been incurred on the good units whereby they would cost 111.11/unit (1,00,000 900 -
Loss valued at its realisable or marketable rate
Net Realisable rate
= Sale Price − Expenses directly relatable to sales
= 1/unit − 0
= 1/unit
Particulars Quantity Value Rate Stock Acquired
(−) Loss1,000
1001,00,000
100100.00
1.00Good/Net Stock 900 99,900 111.00 The loss is valued at its marketable or realisable rate. Costs are recouped to the extent of the value of loss. Remaining cost is considered to have been incurred on the good units, whereby good units would cost 111/unit (99,900 900
Principle for valuation of Normal Loss
Normal Cost
Normal cost for stock/goods is the cost that would have to be incurred if the same quantity of stock/goods of the same quality are to be acquired again at or about the same time.
Particulars | Quantity | Value | Rate |
---|---|---|---|
Stock Acquired (−) Loss |
1,000 100 |
1,00,000 – |
100.00 ? |
Good/Net Stock | 900 | – | – |
Considering the loss as normal
Assuming that the loss in transit would occur every time 1,000 units of the kind are transported from the store to the factory, the loss of 100 units would be normal.
Normal Cost
The normal cost of the 900 good units acquired can be assessed by answering the following question.
If another lot of 900 good units are needed, how many units are required to be bought?
The answer would be 1,000 units, as 100 units will be lost in transit for sure, since the loss is being termed normal.
The amount that has to be spent would be for purchasing 1,000 units i.e. 1,00,000. The loss units are capable of being sold for 1, always. The cost incurred can be recouped to the extent of this realisation. The net cost to be incurred for acquiring the good stock of 900 units would be 99,900.
Particulars | Quantity | Value | Rate |
---|---|---|---|
Stock Purchased (−) Normal Loss |
1,000 100 |
1,00,000 100 |
100.00 1.00 |
Good/Net Stock | 900 | 99,900 | 111.00 |
Thus, valuing normal loss at its realisable or marketable rate would be appropriate in deciding the cost per unit of the good stock (net stock).
-
Use
Value Quantity - The cost of net stock, arrived at by adjusting the normal loss, is what is called Normal Cost in valuation of stocks.
What happens to the cost incurred on Normal Loss Stock?
Cost
The stock lost being part of the stock acquired, its cost can be arrived at by valuing it at the purchase price of all stock.
Cost = 10,000 @ 100 per unit.
Value
The normal loss stock is valued at its net realisable price. This amounts to valuing the normal loss stock at a price other than its cost of acquisition.
Value = 100 @ 1 per unit.
Loss
The difference between the cost of acquisition and the value attributed to it would be the loss on account of the stock lost.
Loss in value
= Cost − Value attributed
= 10,000 − 100
= 9,900
Absorption of loss in value of normal loss stock
The value loss on account of the normal loss units is absorbed by the good units.
The good units which cost 100 per unit would absorb the value loss on account of normal loss units as an additional cost of their acquisition, whereby their cost of acquisition increases.
Value loss absorbed per good unit
= |
|
|||
= |
|
|||
= | 11/unit |
Cost of good units
= Cost of acquisition + value loss of normal loss absorbed per unit
= 100 + 11
= 111
Why is the loss in value of normal loss stock absorbed by good stock?
Say, sale price of good units
= Cost of acquisition + 10% profit on cost
Realisation from sale of good units (without absorbing loss in value of normal loss units)
= 90,000 + 10% of 90,000
= 90,000 + 9,000
= 99,000
< total cost of 1,00,000 or 99,900
The loss in value of normal loss stock is inevitable and has to be borne every time the goods are acquired. The only route available to make good that loss is through the sale of good units.
The good units should provide a realisation that would recover their cost as well as the loss in value of normal loss units.
Realisation from sale of good units (after absorbing the loss in value of normal loss units)
= 99,900 + 10% of 99,900
= 99,900 + 9,990
= 1,09,890
> total cost of 1,00,000 or 99,900
Thus the cost of good units is inflated by absorbing the loss in value of normal loss units, to accommodate the recovery of the loss in value of normal loss units.
Principle for valuation
Normal loss is valued at its net realisable price.
Realised or Realisable
Where there is a time gap between recording the value of normal loss in the books of accounts and its realisation by disposal, then it would be valued at a notional price which is the realisable price.
Eg: Whenever a load of goods arrives at the consignees godown, they are checked and the damaged goods (normal loss) are put aside and reported to the consignor. These are sold periodically. The consignor records them in his books of accounts at a notional value.
Where realisation by disposal precedes recording the value of normal loss in the books of accounts, then it need not be valued at the notional price, as the actual realisation would represent its realisable rate.
Eg: Whenever a load of goods arrives at the consignees godown, they are checked and the damaged goods (normal loss) are immediately disposed off and reported to the consignor. The consignor records them in his books of accounts at the realised value.
Consistent Valuation
If the organisation so intends, it may value normal loss consistently at the notional price and treat the difference between the notional value and the value it realises as abnormal gain or loss. In such a case, the normal loss would be recorded at the same value in both the above cases.
Principle for valuation of Abnormal Losses
Particulars | Quantity | Value | Rate |
---|---|---|---|
Stock Acquired (−) Loss |
1,000 100 |
1,00,000 – |
100.00 ? |
Good/Net Stock | 900 | – | – |
Considering the loss as Abnormal
If the nature of the loss is such that it would not occur every time the 1,000 units of the kind are transported from the store to the factory, then the loss of 100 units can be considered to be abnormal.
Normal Cost
The normal cost can be assessed by answering the following question.
If another lot of 900 good units are needed, how many units are required to be bought?
The answer would be 900 units, as the loss of 100 units need not be considered to be certain, since the loss is being termed abnormal.
The amount that has to be spent would be for purchasing 900 units i.e. 90,000.
Particulars | Quantity | Value | Rate |
---|---|---|---|
Stock Purchased (−) Abnormal Loss |
1,000 100 |
1,00,000 10,000 |
100.00 100 |
Good/Net Stock | 900 | 90,000 | 100 |
Thus, valuing abnormal loss at its cost would be appropriate in deciding the cost per unit of the good stock (net stock).
What happens to the Abnormal loss stock
The abnormal loss stock is valued at cost which implies that it is treated on par with the good stock for the purpose of valuation. Since the stock is damaged and cannot be sold along with the good stock, it will have to be considered separate from the good stock.
Where there is abnormal loss stock, we consider the stock to be of two kinds, good stock and abnormal loss stock.
Particulars | Good Stock | Abnormal Loss | Total | |||
---|---|---|---|---|---|---|
Qty | Val | Qty | Val | Qty | Val | |
Stock Acquired | 900 | 90,000 | 100 | 10,000 | 1,000 | 1,00,000 |
Abnormal loss stock would be forming a distinct asset and all aspects relating to it would be dealt with separately.
Principle for valuation
Abnormal loss is valued at cost.
Influence of normal loss on the value of Abnormal loss stock
The value of abnormal loss stock is the cost of acquisition. Its value is ascertained based on the principles of valuation of assets like in the case of good stock.
Normal losses influence value
Where there is a normal loss that is ascertained before the point where the abnormal loss is ascertained, then the cost of acquisition which forms the value of abnormal loss units should be the one after absorbing the value of loss on account of normal loss, i.e. after adjusting normal loss.
-
Normal loss adjusted
2,000 units @ 50 per unit were bought, 5% of which is normally lost in transport which can realise 2 per unit. The stock received was 1800 units. Losses if any are ascertained after receiving the stock.
Particulars Quantity Value Rate Stock Acquired
(−) Normal Loss (in Transit) @5% *12,000
1001,00,000
20050
2Net Stock *2
(−) Abnormal Loss *3
1,900
10098,800
5,20052
52Stock Received 1,800 93,600 52 Note
-
Normal Loss *1
= 5% of Stock acquired
= 2,000 × 5%
= 100
-
Use
Value Quantity -
Since, stock received < net stock, there is abnormal loss.
Quantity of Abnormal loss *3
= Net Stock − Stock Received
= 1,900 units − 1,800 units
= 100 units
- Both Abnormal loss and stock received (good stock) are valued at the normal cost per unit i.e. 52 per unit after adjusting normal loss.
-
The value of stock received (good stock) whose value is shown as a residual figure should be the same even when calculated at the rate of normal cost per unit.
Value of Net Stock − Value of Abnormal Loss
= 98,800 − 5,200
= 93,600
Quantity of Stock Received × Normal Rate for valuation of stock
= 1,800 units × 52/unit
= 93,600
-
Normal Loss *1
-
Normal loss not adjusted
2,000 units @ 50 per unit were bought of which 1,800 units were received, the rest assumed to be lost on account of an accident in transportation. 5% of the stock is normally lost in storage which can realise 2 per unit.
Particulars Quantity Value Rate Stock Acquired
(−) Abnormal Loss *12,000
2001,00,000
10,00050
50Stock Received
(−) Normal Loss *21,800
9090,000
18050
2Stock Used *3 1,700 89,820 52.84 Note
-
Since, stock received < stock acquired, there is abnormal loss.
Quantity of Abnormal loss *1
= Stock Acquired − Stock Received
= 2,000 units − 1,800 units
= 200 units
- Both Abnormal loss and stock received (good stock) are valued at the normal cost per unit i.e. 50 per unit, the cost of acquisition.
-
Since the loss is in storage, normal loss would be on the stock received for storage.
Normal Loss *2= 5% of Stock received
= 1,800 × 5%
= 90
-
Use
Value Quantity
-
Since, stock received < stock acquired, there is abnormal loss.
Insurance realisation on Abnormal loss stock
When stock has been insured to cover losses on account of abnormal reasons, there might be insurance realisation.
The insurance company might take away the salvaged stock and consider the total stock as lost for paying the insurance amount. Alternatively, it might leave the salvaged stock with the customer, value it at a certain price and consider the rest of the value of stock lost as loss it has to make good.
Insurance is a contract of Indemnity
An insurance to cover loss on account of abnormal reasons is a contract of indemnity. It is commonly called a general insurance contract.
A life insurance contract is a contract of guarantee. It is a promise to pay a certain sum on the happening of an event, death of the insurer.
Indemnity
- Protection against future loss
- A sum of money paid in compensation for loss or injury
- insurance
- redressal
- amend
The insurance company would make good the value of abnormal loss, which will result in the loss being indemnified in full or partially as per the terms of the contract.
What the insurance company pays may be less than or equal to the loss incurred and would never be more than the value of the loss.
Even when two or more insurance companies have insured the stock, the aggregate realisation from sale and insurance from all companies would not normally exceed the total value of the abnormal loss stock.
The insurance contract is for making good the loss and not a promise for payment of a certain sum.
Realisation from sale of Normal and Abnormal Loss Stock
Sale Price of Abnormal loss stock
The abnormal loss stock being in a condition inferior to the good stock, would realise a price that would be below the normal selling price of good stock, except under extra ordinary circumstances. The price the abnormal loss stock realises would be dependent on its condition. The abnormal loss stock not realising anything is also a possibility.
Sale Price of Normal loss stock
Normal loss is valued at its net marketable price, which would be
- the actual price for which the stock was disposed, if the valuation is being done at the time of sale
-
the probable price it may fetch, if the valuation is being done at the time prior to its sale
In such a case, the actual price at which the normal loss stock is disposed may be more, less or equal to the rate at which it was valued.
Net realisable rate
If there are expenses directly relatable to sale, the realised price would be the price that is realised after setting off the expenses.
If the sale price is realised in full and the expenses are paid later on, the full price would be the realised price and the expenses would be treated as expenses relating to the loss stock.
Note
In problem solving, in the absence of information, we may assume that the loss stocks cannot realise anything or that the loss stock is still to be disposed.
Expenses on Normal or Abnormal loss stocks
Expenses may have to be incurred on the loss stocks for salvaging or improving their value for deriving appropriate realisation from their disposal.
Since these expenses are intended to enhance the value of the loss stocks, they should not be treated as revenue natured expenses. These expenses will result in an increase in the value of the loss stock, on the consideration that they are assets to be realised.
Normal Expenses
Expenditure that is incurred in relation to loss stocks that are required to identify and seggregate the loss stocks from good stock would be normal expenditure for the business. Such expenses are to be treated like every other normal expense and has to be charged to the consignment a/c.
Eg: Expenditure incurred for separating the loss stock from the good stock.
Expenses relatable to loss stocks
Expenses may be incurred on the normal and abnormal loss stocks to sustain or enhance their value. These expenses may be incurred and paid for by the consignor or the consignee.
Such expenses are necessarily incurred to either salvage the stock or repair the stock to bring it into a saleable condition. They are incurred only if the amount realised after incurring the expenditure would be more than the amount realised had the stock been disposed off as it is.
Consignment a/c is charged with the value of all stock that has been consigned. The value of the loss stock is taken away from the consignment account and moved to the Normal loss a/c or the Abnormal Loss a/c depending on the nature of loss, thereby reducing the charge on the consignment account to the extent of the value of the loss stock.
Considering the loss stocks to be distinct assets to be realised, any expenditure that is incurred on them should be treated as expenditure that increases their value.
Profit or Loss on disposal of Normal or Abnormal Loss stock
Abnormal Loss Stock
Where the aggregate realisations from the sale, insurance and others if any, is less than the value of the abnormal loss stock, there would a loss.
Though a rare occurrence, there would be a gain if the realisation is more than the value of the loss stock. The loss stock being inferior to good stock, it normally cannot be sold for a value that would fetch a profit. Since insurance is a contract of indemnity, the possibility of profit on account of greater insurance realisation is not also possible.
Eg: After the insurance company has valued the salvaged stock at a certain rate and paid the rest of the value, if the salvaged stock could be disposed off at a higher rate, there would be a profit on account of abnormal loss stock.
Normal Loss Stock
Where the normal loss is valued at the price at which it was disposed off, there is no gain or loss on its disposal.
Where normal loss has been valued at a notional price, the realisation from the sale of normal loss stock may be, less than, more than, or equal to its notional value, resulting in either a loss or profit or neither profit nor loss respectively.
Note
Consider the loss stocks as special kind of assets and interpret the profit or loss as profit or loss on disposal of the asset.
What happens to the Profit or Loss?
Trading a/c, Consignment a/c, Branch a/c etc., are accounts which would give us the profit or loss made from transactions relating to their respective streams of business.
The profit that is derived from these accounts should be normal to the activity. Only incomes, expenses, gains and losses relevant to the normal course of activity should influence these accounts. These accounts should not be influenced by abnormal natured gains or losses.
Profits or losses on disposal of loss stocks is not normal to the business. So as to ensure that these accounts are not influenced by such profits or losses, the value of loss stock is moved away from these accounts and dealt with separately.
Each of these streams will generate a certain amount of profit or loss which is transferred to the profit and loss account which is an aggregator of profits and losses from all such business activities. All other incomes, expenses, gains and losses of indirect and abnormal nature, are adjusted to this collective profit, to reveal the Net Profit made.
The profit or loss on account of disposal of normal and abnormal losses is abnormal natured and is thus transferred to the profit and loss account. Normal loss is normal, but not a profit or loss on its disposal.
Illustration
1,000 units @ 40 per unit were bought, 5% of which is normally lost in transport which can realise 2 per unit. The stock received was 920 units. Losses if any are ascertained after receiving the stock.
Particulars | Quantity | Value | Rate |
---|---|---|---|
Stock Acquired (−) Normal Loss (in Transit) @5% |
1,000 50 |
40,000 100 |
40 2 |
Net Stock (−) Abnormal Loss |
950 30 |
39,900 1,260 |
42 42 |
Stock Received | 920 | 38,640 | 42 |
-
Use
Value Quantity
Expenses of 180 and 50 were incurred on the normal and abnormal loss stocks respectively. Insurance company paid 480. The normal and abnormal loss stocks were sold @3.20 per unit and @18 per unit respectively.
Particulars | Quantity | Value | Rate |
---|---|---|---|
(a) Value
Cost
Expenses |
30 |
1,260 180 |
42 6 |
Total | 30 | 1,440 | 48 |
(b) Realisations
Insurance recovery
Sale |
30 |
480 540 |
16 18 |
Total | 30 | 1,020 | 34 |
Net (b) − (a) | −420 | ||
(+)Profit/(−)Loss |
Note
- Since the total realisation is lesser than the total value, there is a loss.
- Avoid the rate and quantity columns, if you find them confusing.
Particulars | Quantity | Value | Rate |
---|---|---|---|
(a) Value
Cost
Expenses |
50 |
100 50 |
2 1 |
Total | 50 | 150 | 3 |
(b) Realisations
Sale
|
50 |
160 |
3.20 |
Total | 60 | 160 | 3.20 |
Net (b) − (a) | +10 | ||
(+)Profit/(−)Loss |
Note
- Since the sale realisation is greater than the total value, there is a profit.
- Avoid the rate and quantity columns, if you find them confusing.
Normal and Abnormal Losses in Consignments
Valuation
The principle for valuation of normal and abnormal loss stocks are universal. We apply the same principles in consignments also.
Value of Normal loss stock
= Net realisable or marketable value
Value of Abnormal loss stock
= Normal Cost
= Cost + Direct Expenses incurred till the point of occurrence of loss
What expenses go into the value is dependent on the point at which the loss occurs.
Point of occurrence
Following are some of the points where losses could occur in consignment business, classified based on the components of normal cost.
-
Normal Cost
= Cost + Consignor Direct Expenses
- Loss while loading at consignor's place
- Loss in transit from consignor's place to the consignee's place.
-
Normal Cost
= Cost + Consignor Direct Expenses + Some of the Consignee Direct Expenses
- Loss while unloading at the consignee's place.
-
Normal Cost
= Cost + Consignor Direct Expenses + Consignee Direct Expenses
- Loss in storage at consignee's godown.
- Loss in transit from consignee's godown to the buyer's place
A statement in the following format would be useful in all situations dealing with both normal and abnormal losses.
Particulars |
Amount (value) |
Quantity (in units) |
Rate (val/unit) |
Amount (value) |
---|---|---|---|---|
Goods Consigned (+) Consignor Direct Expenses
Freight
Loading Charges |
8,000 3,000 |
1,100 — |
50 10 |
55,000 11,000 |
(−) Loss-in-Transit (Normal) (*a) |
1,100 10 |
60 1 |
66,000 10 |
|
(−) Loss in Transit (Abnormal) |
1,090 40 |
60.54 60.54 |
65,990 2,421 |
|
(−) Stock in Transit |
1,050 50 |
60.54 60.54 |
63,569 3,027 |
|
(+) Consignee Direct Expenses *1
on all stock transported
|
3,000 2,000 |
1,000 — |
60.54 5 |
60,540 5,000 |
(−) Loss in Transit (Abnormal) |
1,000 40 |
65.54 65.54 |
65,540 2,622 |
|
Good Stock
(+) Consignee Direct Expenses *2
on good stock received
|
1,200 2,000 |
960 |
65.54 3.33 |
62,918 3,200 |
(−) Loss in Storage (Normal) |
960 20 |
68.87 0 |
66,118 0 |
|
Net stock received
(+) Opening Stock (with the Consignee)
|
940 80 |
70.34 68.20 |
66,118 5,456 |
|
Total Stock | 1,020 | 70.17 | 71,574 | |
Returned Sold Loss in Storage (Abnormal) Unsold |
20 880 25 95 |
50 70.17 70.17 70.17 |
1,000 1,755 6,666 |
Note
-
Use
Value Quantity -
The expenses incurred by the consignee, that are treated as direct expenses, may be of two kinds.
Expenses *1 which have to be paid for all the goods being transported
Expenses *2 which have to be paid only for the good stock being unloaded, leaving aside the stock that is damaged in transit. This would be the case where the goods are so damaged that it would be beneficial to throw them away instead of taking delivery and paying the expenses.
- Returned goods are valued at the consigned cost and not at the value arrived at by adding up direct expenses.
- This statement which follows the physical flow of stock, can be used in almost all cases. Ignore the rows which are not relevant to the situation and work out the statement to obtain all the needed information.