Abnormal material loss under VAS 02: separating it from product cost in ERP
Written by the S4 Consulting Oracle NetSuite team · Reviewed by Lạc Phạm, Solution Architect, S4 Consulting · Updated 28 Oct 2026
Abnormal material loss, the part of material usage above the normal level, is excluded from the cost of inventory under Vietnamese Accounting Standard 02 Inventories (VAS 02) and expensed to cost of goods sold, account 632, in the period. Normal loss within tolerance stays in product cost, and count differences with no identified cause are held in account 1381, shortages pending resolution. Getting this right takes three inputs: BOM quantities, actual usage from the period-end count and a normal loss tolerance for each material. This article walks through each step and shows how S4 eSuite VN Actual Costing handles it inside Oracle NetSuite.
How does normal loss differ from abnormal material loss?
The difference is which part counts as a cost of making the product. Every process has natural loss: offcuts, evaporation, residue in molds, solder joints reworked. That loss is needed to make the product, so it belongs in product cost. VAS 02 states that materials, labor and other production costs incurred above normal levels are not included in the cost of inventory. Guidance on account 154 under Circular 99/2025/TT-BTC likewise sends material cost above the normal level to 632 rather than to product cost.
The hard part is that “normal” is not defined in the regulations; each company sets it per material from its process and production history. That tolerance becomes key internal evidence for auditors. For tax, keeping consumption standards period by period supports the explanation of costs, while deductibility still depends on documentation and the tax rules in force.
How is actual material usage derived from the stock count?
Actual usage for a period is derived from balances: opening stock at the plant plus receipts in the period, less closing stock per the count. That figure is then compared with standard usage, the BOM quantity multiplied by actual output including equivalent units in progress. In NetSuite, issues to work orders can follow the BOM or actual picks; in a common configuration, count differences post to an inventory adjustment account rather than to product cost. S4-APC uses the period-end count to compute actual usage of each material, compares it with the BOM and splits the loss against the tolerance.
Worked example: which loss goes into cost and which goes to 632?
The rule is that the difference within tolerance stays in product cost and the portion above it goes to 632. Illustrative example with two materials, both with a 2% normal loss tolerance:
| Item | Solder paste | Copper sheet |
|---|---|---|
| Standard usage for actual output | 600 g | 5,000 kg |
| Actual usage from count | 610 g | 5,250 kg |
| Difference to standard | 10 g (1.67%) | 250 kg (5%) |
| 2% normal loss tolerance | 12 g | 100 kg |
| Included in product cost | All 610 g | 5,100 kg |
| Excess expensed to 632 | 0 | 150 kg |
For solder paste, the 10 g difference is within the 12 g tolerance, so all usage stays in product cost. For copper sheet, assume VND 220,000 per kg: actual usage is worth VND 1,155,000,000 (5,250 x 220,000), of which VND 1,122,000,000 (5,100 x 220,000) goes to product cost and VND 33,000,000 (150 x 220,000) to 632. Without the split, those VND 33,000,000 would sit in finished goods, partly in inventory (155), and reach the income statement only when the goods are sold in a later period.
Keep abnormal loss out of product cost, inside NetSuite
Compute usage from stock counts, set tolerances by material, expense the excess to 632 and hold unexplained shortages in 1381.
Explore S4 eSuite VN Actual Costing →Download the PDF brochure
Where do unexplained count differences go?
Count differences with no identified cause go to account 1381, shortages pending resolution, rather than straight into product cost or cost of goods sold. Keeping them apart means product cost reflects only production-related usage, and it forces a proper process: find the cause, recover the loss from a responsible party where applicable, or obtain approval to expense it. S4-APC posts these amounts to 1381 through the account mapping in configuration, so it follows whichever Vietnamese accounting regime the company applies.
What if a full count is not available?
Not every plant counts all materials every month. S4-APC offers four estimation options when count data is incomplete, and the subsidiary policy sets the maximum number of months a material may go uncounted:
| Option | Logic | Fits when |
|---|---|---|
| BOM standard | Usage equals BOM quantity times output | Standards are close to reality and materials are low value |
| Usage history | Based on actual usage rates of earlier periods | Stable processes with several periods of data |
| Cycle count | One group of materials counted each period, the rest estimated | Large material lists that cannot be fully counted monthly |
| Indirect measurement | Usage inferred from a measured quantity | Hard-to-count materials such as chemicals, gases and liquids |
Treat estimates as a bridge between full counts, because abnormal loss only becomes clear when real count data is in.
Should materials be tracked by actual issue or allocated at period end?
S4-APC supports both and lets the company choose by subsidiary or by plant. Actual issue to each work order suits high-value main materials that are picked by lot or bin and need traceability to the order. Period-end allocation suits line-side materials such as solder paste, adhesive or chemicals, where issuing to each order costs effort and adds no insight. The company can also choose how to book additional material cost, either by revaluing inventory or by updating the completion directly, and can classify other issues such as scrap by account for separate reporting.
Which reports help reduce material loss at the source?
Booking abnormal loss to 632 is the accounting step; reducing it is what improves profit. Among the 18 S4-APC reports, these matter most to plant managers:
- Standard vs actual: which materials and work orders exceed standard usage.
- BOM accuracy: which standards drift from reality period after period, as a basis for updating the BOM.
- Loss by line and shift: where loss occurs, so it can be fixed on the spot.
- Scrap: scrap quantities and value across periods.
Abnormal loss is one of three VAS 02 adjustments a cost accountant makes each period, alongside fixed manufacturing overhead at normal capacity and ending WIP measurement. The overall picture is in actual manufacturing cost on NetSuite, the count and usage steps appear in the S4-APC overview video, and the full function list is on the S4 eSuite VN Actual Costing page.
Frequently asked questions
Where is abnormal material loss recorded in Vietnam?
Under VAS 02, material cost above the normal level is excluded from the cost of inventory and expensed to cost of goods sold, account 632, in the period.
Which account holds unexplained count differences?
Account 1381, shortages pending resolution, until the cause is found and a decision is made.
Who sets the normal loss tolerance?
The company sets it per material from its process and production history, ideally in a written policy kept with the BOM standards.
How does S4-APC estimate usage without a full count?
It offers four options: BOM standard, usage history, cycle count and indirect measurement.
Does S4-APC guarantee that material loss is tax deductible?
No. It supports keeping consumption standards and explaining costs; deductibility depends on documentation and the tax rules in force.
