Normal Loss and Abnormal Loss on Consignment

Goods sent on consignment do not always arrive, or remain, in exactly the quantity despatched. Some shortage is a natural, unavoidable feature of certain goods — a liquid that evaporates a little in transit, a powder that loses some weight through drying, grain that shrinks slightly in storage. This kind of loss is called a Normal Loss: it is inherent to the nature of the goods, occurs in the ordinary course of handling them, is reasonably predictable in advance (often as a stated percentage), and simply CANNOT be avoided by any reasonable care. A normal loss is never separately valued and never appears anywhere as a loss figure in the Consignment Account — the only effect it has is to raise the effective cost of every unit that DOES survive, because the SAME total cost and expenses must now be spread over a SMALLER quantity of good units:

Cost per unit after a normal loss = (Total cost of goods sent + Total non-recurring expenses) ÷ (Units sent − Units lost normally)

An Abnormal Loss is the opposite kind of event: a loss due to a genuinely accidental or unusual cause — fire, theft, a serious accident in transit, flood — that is neither a natural characteristic of the goods nor something that ordinary careful handling would routinely produce. Because an abnormal loss could, in principle, have been avoided, and because letting it silently reduce the quantity available for sale would distort the consignment's TRADING result, an abnormal loss is always valued separately (using the SAME cost-per-unit already arrived at after excluding any normal loss) and taken OUT of the Consignment Account entirely: it is credited to the Consignment Account (so the ordinary trading profit on the consignment is not understated by an unrelated accident) and shown instead as a distinct loss. If the goods were insured and the insurer admits a claim, that claim is credited against the value of the abnormal loss, and only the genuine, UNINSURED shortfall is finally transferred to the Profit and Loss Account as a loss — kept clearly separate from the ordinary profit or loss earned on selling the rest of the consignment.