PPT: Value Added Statement | Financial Analysis and Reporting - B Com PDF Download

 Page 1


INTRODUCTION
The concept of value-added has not yet been
widely used in the management of Indian firms. In
several European countries and in the U.K. this
concept has been in use for quite sometime
because they have introduced value-added tax in
their fiscal system. In India, too, some well-known
companies have started presenting value-added
statements in their annual reports e.g. ACC in its
latest report has given a value added statement.
Page 2


INTRODUCTION
The concept of value-added has not yet been
widely used in the management of Indian firms. In
several European countries and in the U.K. this
concept has been in use for quite sometime
because they have introduced value-added tax in
their fiscal system. In India, too, some well-known
companies have started presenting value-added
statements in their annual reports e.g. ACC in its
latest report has given a value added statement.
INTRODUCTION
The economists have been using this concept for
measuring the Gross National Product. The four
productive agencies working on the natural
resources, convert them into usable products and
add value which is termed as national wealth. This
is distributed to these four agents of production.
This logic can be applied to individual firm also.
Page 3


INTRODUCTION
The concept of value-added has not yet been
widely used in the management of Indian firms. In
several European countries and in the U.K. this
concept has been in use for quite sometime
because they have introduced value-added tax in
their fiscal system. In India, too, some well-known
companies have started presenting value-added
statements in their annual reports e.g. ACC in its
latest report has given a value added statement.
INTRODUCTION
The economists have been using this concept for
measuring the Gross National Product. The four
productive agencies working on the natural
resources, convert them into usable products and
add value which is termed as national wealth. This
is distributed to these four agents of production.
This logic can be applied to individual firm also.
DEFINITION OF VALUE ADDED
Value Added = Net Sales - Cost of items bought from outside.
We discuss below some of the definitions :
• “Value added may be defined as the ultimate value of
sales of goods and services by the firm (represented by
its sales turnover) less the cost of all goods and services
bought from outside suppliers."
• Kohler writes, “ V al ue added is that part of the cost of
manufacture of semi-manufactured product
attributable to work performed on constituent raw
materials."
• “ V alue added is the excess of firm's sales revenue and
income from services over the cost of materials and
services bought from outside."
Page 4


INTRODUCTION
The concept of value-added has not yet been
widely used in the management of Indian firms. In
several European countries and in the U.K. this
concept has been in use for quite sometime
because they have introduced value-added tax in
their fiscal system. In India, too, some well-known
companies have started presenting value-added
statements in their annual reports e.g. ACC in its
latest report has given a value added statement.
INTRODUCTION
The economists have been using this concept for
measuring the Gross National Product. The four
productive agencies working on the natural
resources, convert them into usable products and
add value which is termed as national wealth. This
is distributed to these four agents of production.
This logic can be applied to individual firm also.
DEFINITION OF VALUE ADDED
Value Added = Net Sales - Cost of items bought from outside.
We discuss below some of the definitions :
• “Value added may be defined as the ultimate value of
sales of goods and services by the firm (represented by
its sales turnover) less the cost of all goods and services
bought from outside suppliers."
• Kohler writes, “ V al ue added is that part of the cost of
manufacture of semi-manufactured product
attributable to work performed on constituent raw
materials."
• “ V alue added is the excess of firm's sales revenue and
income from services over the cost of materials and
services bought from outside."
DEFINITION OF VALUE ADDED
Here sales revenue includes selling price of goods
plus duty and sales tax less goods returned, goods
withdrawn for personal use, commission, rebate,
discount etc. In the income from services are
included such other incomes as rent, interest etc.
Cost of services bought include power, fuel, repairs
and maintenance, postage and stationery, bank
commission, insurance premium, advertisement,
printing, audit fees, legal fees etc.
Page 5


INTRODUCTION
The concept of value-added has not yet been
widely used in the management of Indian firms. In
several European countries and in the U.K. this
concept has been in use for quite sometime
because they have introduced value-added tax in
their fiscal system. In India, too, some well-known
companies have started presenting value-added
statements in their annual reports e.g. ACC in its
latest report has given a value added statement.
INTRODUCTION
The economists have been using this concept for
measuring the Gross National Product. The four
productive agencies working on the natural
resources, convert them into usable products and
add value which is termed as national wealth. This
is distributed to these four agents of production.
This logic can be applied to individual firm also.
DEFINITION OF VALUE ADDED
Value Added = Net Sales - Cost of items bought from outside.
We discuss below some of the definitions :
• “Value added may be defined as the ultimate value of
sales of goods and services by the firm (represented by
its sales turnover) less the cost of all goods and services
bought from outside suppliers."
• Kohler writes, “ V al ue added is that part of the cost of
manufacture of semi-manufactured product
attributable to work performed on constituent raw
materials."
• “ V alue added is the excess of firm's sales revenue and
income from services over the cost of materials and
services bought from outside."
DEFINITION OF VALUE ADDED
Here sales revenue includes selling price of goods
plus duty and sales tax less goods returned, goods
withdrawn for personal use, commission, rebate,
discount etc. In the income from services are
included such other incomes as rent, interest etc.
Cost of services bought include power, fuel, repairs
and maintenance, postage and stationery, bank
commission, insurance premium, advertisement,
printing, audit fees, legal fees etc.
Purchase
• Materials
• Services
• Other stores
Firm's Services
• Employees
• Machines
• Owners who provide 
capital and money
• Government, which 
provide convenient 
environment
Output
• Finished Goods and
• Services
Who will get as 
compensation
• Salaries and wages
• Depreciation
• Dividend and 
interest
• Taxes and duties