VALUE ADDED STATEMENT

BY – Prof. Survase Deepak K.

Lect. Dept. of Commerce,
Appasaheb Jedhe College, Pune- 411002.
Email Id: deepaksurvase_2005@yahoo.com
Mob No – 8087217999

 INTRODUCTION
So far business enterprises were preparing Profit & loss account or
income statement to know the amount of profit earned. With the social
awareness it was realized that business should disclose its social
responsibilities towards the society. It is in this direction that value added
statement is prepared as an improved replacement of profit & loss
account.
The concept of value added is considerably old. Its originated in the
U.S. Treasury in the 18th century & periodically accountant have
deliberated upon whether the concept should be incorporated in financial
accounting in practice.

 MEANING & CONCEPT

V.A. is the wealth a reporting entity has been able to create through
the collective effort of capital, management and employees. The excess of
market value over cost of material is value added.
“It is the difference between cost of material and the price consumer is
ready to pay.
 DEFITION
By CIMA …”Value added is sale value less the cost of purchase material
and services. This represent the worth of alternation in form, location or
availability of product and service.”
Value added depend on various factors such as location, Geographical,
Area, Demand factor, Supply factor.

 OBJECT
To know the concept of value added which related to recent trends.
This statement is additional statement difference from profit & loss
statement. This statement explain wealth generated by businessman and
how he has distributed this fund.

 DIFFERENCE BETWEEN VALUE ADDED AND PROFIT & LOSS

Profit is calculated after deducting all expenses incurred from
purchases of material till its reaches in the hand of consumer.
On the other hand value added is difference between revenue from sales and
services brought into product and material. Profit is a micro concept while
value added is a macro concept. Therefore the figure of profit measures the
welfare of shareholder while the figure of value added measures the
welfare of society as a whole.

 CLASSIFICATION OF VALUE ADDED

Value added may be classified as a GROSS VALUE ADDED & NET
VALUE ADDED .
Gross value added refers to sale plus income from service less bought in
material and services purchased from outsider.
The amount of Net value added is calculated by deducting the figure of
depreciation from the figure of Groos value added.
 ADVATAGE OF VALUE ADDED
1. Ratios :-
It help to calculate earning capacity of business. It helps to
calculate efficiency of business.
2. Operating Efficiency :-
Operating efficiency is calculated with the help of ratio analysis.
It explain company s role in creating wealth and in generating national
income.
3. Cost of capital employed :-
Cost of capital is very crucial factor while determining the capital
structure. While selecting the cost of capital it is necessary to pay
attention to cost of each source to select beneficial source of capital is
necessary.
4. Helpful to build integrity of employee :-
The value added is not focus to profit i.e. owners interest only, it
focuses the collective efforts put by the capital, management, and
employees to create the wealth. It help to increase loyalty of employees.
5. Helpful to executing productivity linked bonus schemes :-
These statement helps to introduce and execute productivity
linked bonus scheme.

 LIMITATION OF VALUE ADDED

1. Value added statement are not popular with many companies they do
not have any specific format. Lack of standardized format is the major
limitation of value added statement.
2. Supplementary statements and not substitute :- profit and loss
statement is treated as a traditional measure performance still it can not
be replace by VAS . The VAS is prepared and published on a
supplementary statement but it can never substitute the income
statement.
 MEHODS OF CALCULATING THE AMOUNT OF VALUE ADDED

1) ADDITIVE METHOD :

Gross value added = Profit benefit tax + Employee cost + Depreciation

+ Intrest.

GVA = PBT + EC + D + I

Employee cost = wages + salaries + other benefit to employee.

2) SUBTRACTIVE METHOD :

Gross value added = Sale + Income from service – Cost of bought in

Goods and Service.

GVA = S + IS – (CBGS)

 APPLICATION OF VALUE ADDED

The amount of value added by a concern is shared by its employees,
provider of capital and government while a part of Value added is
reinvested in the business. The description of the above cited application of
value added is as given below :
EMPLOYEE
PROVIDER OF CAPITAL
GOVERNMENT
REINVESTMENT IN THE BUSINESS

 REFRENCES
ADVANCE ACCOUNTIG : M.G. PATKAR
ADVANCE ACCOUNTIG : SHUKLA GAREWAL

INTERNET : tuto2u.net/business/presentation
 VALUE ADDED STATEMENT - REPORT FORM
Items Rs Rs

A) Generation of value added

Sale XXX
Add: Income from service XXX

Less : Cost of bought in materials & service XXX

GROSS VALUE ADDED XXX

Less : Depreciation XXX
NET VALUE ADDED XXX
B) APPLICATION OF VALUE ADDED
Payment to Employee XXX
Payment to Government XXX
Payment to provider of capital XXX
Retained Earning XXX
....................
NET VALUE ADDED XXX
…………………

VALUE ADDED STATEMENT – ACCOUNT FORM

a) Generation of AMT. APPLICATION OF AMT.
value added RS VALUE ADDED RS

Sale XXX Payment to Employee XXX

Add : Income from Service XXX Payment to
Less : Cost of bought in Government XXX
materials & service XXX Payment to provider of
GROSS VALUE ADDED XXX capital XXX
Less : Depreciation XXX Retained Earning XXX

NET VALUE ADDED XXX NET VALUE ADDED XXX

 CONCLUSION
No doubt profit is one of the mean to measuring the performance but
Value Added statement is the step ahead of it. It represents the results of
the company due to collective efforts of capital, management and
employees. It represents wealth created by company in manufacturing
process. This wealth is due to collective efforts of management, capital and
employees. It does not consider only profit but it consider the salaries and
wages paid to employee, dividend paid to shareholder, various taxes paid
to government.
This value added statement is prepared by many companies as a
supplementary financial statement in their annual report as a part of social
responsibility reporting.

*************************************
THANK YOU

*************************************