VALUE ADDED STATEMENT

VALUE ADDED STATEMENT BY – Prof. Survase Deepak K. Lect. Dept. of Commerce, Appasaheb Jedhe College, Pune- 411002. Email Id: [email protected] 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 Ratios :- It help to calculate earning capacity of business. It helps to calculate efficiency of business. 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. 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. 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. Helpful to executing productivity linked bonus schemes :- These statement helps to introduce and execute productivity linked bonus scheme. LIMITATION OF VALUE ADDED 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. 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 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 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 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 Generation of value added AMT. RS APPLICATION OF VALUE ADDED AMT. RS Sale Add : Income from Service Less : Cost of bought in materials & service GROSS VALUE ADDED Less : Depreciation XXX XXX XXX XXX XXX Payment to Employee Payment to Government Payment to provider of capital Retained Earning XXX XXX XXX 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 *************************************