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This Law prescribes that the ball immediately ceases to be in play. In cricket the same ball is used for each delivery and only changed rarely: either at request of the fielding captain after a set number of fair deliveries (80 in Test cricket) or when the ball is damaged. Also, the wear on a ball determines how it behaves in the air and when it pitches. As a result of this, when 'lost ball' is called, Law 20 requires the umpires replace the ball with one which had comparable wear to the previous ball.
When 'lost ball' is called, the batting side keeps any penalty that would have been declared if the delivery was not fair (see no-ball and wide) plus 6 runs, or whatever they have in fact run before the call of 'lost ball' was made.
A call of 'lost ball' is unusual in professional cricket, and nowadays only really happens in recreational games where cricket fields may include rabbit warrens, molehills or the like, or where there is a tree in the field of play and no local rule about what happens when it is hit. Previously 'lost ball' could only be called when the ball could not be found. This has resulted in some ridiculous local games where batsmen scored a large number of runs whilst the fielding side fetched a ladder to climb up a tree the ball had got lodged in. (The ball not being lost as it was readily visible.) The current version of the Law prevents this, as now 'lost ball' can also be called when the ball cannot be recovered without outside assistance.