diff --git a/erpnext/manufacturing/report/process_loss_report/test_process_loss_report.py b/erpnext/manufacturing/report/process_loss_report/test_process_loss_report.py
new file mode 100644
index 00000000000..873b39446ff
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+++ b/erpnext/manufacturing/report/process_loss_report/test_process_loss_report.py
@@ -0,0 +1,118 @@
+# Copyright (c) 2026, Frappe Technologies Pvt. Ltd. and Contributors
+# See license.txt
+
+import frappe
+from frappe.utils import nowdate
+
+from erpnext.manufacturing.doctype.work_order.mapper import make_stock_entry
+from erpnext.manufacturing.doctype.work_order.test_work_order import make_wo_order_test_record
+from erpnext.manufacturing.report.process_loss_report.process_loss_report import execute
+from erpnext.stock.doctype.stock_entry import test_stock_entry
+from erpnext.tests.utils import ERPNextTestSuite
+
+
+class TestProcessLossReport(ERPNextTestSuite):
+	def run_report(self, **extra):
+		filters = frappe._dict(
+			{
+				"company": "_Test Company",
+				"from_date": nowdate(),
+				"to_date": nowdate(),
+			}
+		)
+		filters.update(extra)
+		return execute(filters)[1]
+
+	def find_row(self, data, work_order):
+		for row in data:
+			if row.get("name") == work_order:
+				return row
+		return None
+
+	def make_manufactured_work_order(self, planned_qty, produced_qty):
+		"""Create a submitted WO and manufacture `produced_qty` of `planned_qty`.
+
+		The difference is booked as process loss on the Manufacture stock entry,
+		which propagates to the work order's `process_loss_qty`.
+		"""
+		wo_order = make_wo_order_test_record(production_item="_Test FG Item", qty=planned_qty)
+
+		test_stock_entry.make_stock_entry(
+			item_code="_Test Item", target="Stores - _TC", qty=100, basic_rate=100
+		)
+		test_stock_entry.make_stock_entry(
+			item_code="_Test Item Home Desktop 100", target="Stores - _TC", qty=100, basic_rate=100
+		)
+
+		transfer = frappe.get_doc(
+			make_stock_entry(wo_order.name, "Material Transfer for Manufacture", planned_qty)
+		)
+		for d in transfer.get("items"):
+			d.s_warehouse = "Stores - _TC"
+		transfer.insert()
+		transfer.submit()
+
+		manufacture = frappe.get_doc(make_stock_entry(wo_order.name, "Manufacture", planned_qty))
+		# Reduce the finished good qty below fg_completed_qty so the difference is
+		# recorded as process loss.
+		process_loss_qty = planned_qty - produced_qty
+		if process_loss_qty:
+			for d in manufacture.get("items"):
+				if d.is_finished_item:
+					d.qty = produced_qty
+					d.transfer_qty = produced_qty * (d.conversion_factor or 1)
+		manufacture.insert()
+		manufacture.submit()
+
+		wo_order.reload()
+		return wo_order
+
+	def test_work_order_with_process_loss_is_listed(self):
+		wo_order = self.make_manufactured_work_order(planned_qty=5, produced_qty=4)
+
+		self.assertEqual(wo_order.process_loss_qty, 1)
+		self.assertEqual(wo_order.produced_qty, 4)
+
+		data = self.run_report(work_order=wo_order.name)
+		row = self.find_row(data, wo_order.name)
+
+		self.assertIsNotNone(row, "Work order with process loss should appear in the report")
+		self.assertEqual(row.production_item, "_Test FG Item")
+		self.assertEqual(row.qty_to_manufacture, 5)
+		self.assertEqual(row.produced_qty, 4)
+		self.assertEqual(row.process_loss_qty, 1)
+
+		# total_pl_value = process_loss_qty * (total_fg_value / qty_to_manufacture)
+		expected_pl_value = row.process_loss_qty * (row.total_fg_value / row.qty_to_manufacture)
+		self.assertAlmostEqual(row.total_pl_value, expected_pl_value)
+		self.assertGreater(row.total_pl_value, 0)
+
+	def test_work_order_without_process_loss_is_not_listed(self):
+		wo_order = self.make_manufactured_work_order(planned_qty=5, produced_qty=5)
+
+		self.assertEqual(wo_order.process_loss_qty, 0)
+		self.assertEqual(wo_order.produced_qty, 5)
+
+		data = self.run_report(work_order=wo_order.name)
+		self.assertIsNone(
+			self.find_row(data, wo_order.name),
+			"Work order that produced the full planned qty should not appear (no loss)",
+		)
+
+	def test_item_and_work_order_filters_are_ineffective(self):
+		"""BUG: the `item` and `work_order` filters in process_loss_report.get_data
+		call `query.where(...)` without reassigning the result. frappe's query
+		builder is immutable, so `.where()` returns a new query and these extra
+		conditions are silently dropped. A non-matching item filter therefore fails
+		to exclude the row. This test documents the current (buggy) behaviour; if the
+		report is fixed to reassign the query, update the assertion below to
+		`assertIsNone`.
+		"""
+		wo_order = self.make_manufactured_work_order(planned_qty=5, produced_qty=4)
+
+		# A non-matching item filter should exclude the row, but currently does not.
+		data = self.run_report(item="_Test FG Item 2")
+		self.assertIsNotNone(
+			self.find_row(data, wo_order.name),
+			"Filter bug regressed/fixed: `item` filter now takes effect - update this test",
+		)