Preparation Of Value Added Statement Or Approaches Of Value Added Statement

There are two approaches for preparing value added statement:

1.Subtractive Approach

Under this method, value added is determined as net turnover (revenue) which is obtained by subtracting the cost of materials from the sales proceeds.

For example,

A) Revenues (sales and other incomes) ...............................................xxx
B) Less: Consumption of materials.......................................................(xxx)
C) Less: Utilities and supplies................................................................(xxx)
D) Less: Services...................................................................................(xxx)
Net Added Value(A-B-C-D).....................................................................xxx

2. Additive Approach
Under this method, the net added value is computed by adding the distribution of added value made to the stakeholders of the output employed to turn out the product,such as wages, salaries, taxes, interest, dividends,and retained funds.

In fact,these two approaches are not the mutually exclusive methods of value added statements. However, the value added statements includes both to show how much value was added and how it was distributed to the stakeholders of production.

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