Unit: 4 Value Added Statement

Introduction: A "value added statement" in accounting is a financial statement that reveals

how much wealth a company has created through its operations, and how that wealth is
distributed among different stakeholders like employees, government (through taxes), and
shareholders (as profit), essentially showing the total value added by the business beyond the
cost of purchased materials and services. A financial statement showing how much wealth
(value added) has been created by the collective effort of capital, employees, and others and
how it has been allocated for an accounting period. Value added is normally calculated by
deducting materials and bought-in services from turnover.
Meaning of Value Added Statement:
A Value Added Statement (VAS) is a financial statement that highlights the value a company
creates through its operations, showing how much value is added to the raw materials and
resources used to produce goods or services. It typically focuses on the wealth generated by a
company and how it is distributed among stakeholders like employees, shareholders, the
government, and the company itself.
Definition of Value Added Statement:
 Drury (2013) – Drury describes a Value Added Statement as a financial report that
shows the wealth created by the company’s activities and how it is distributed to various
groups, such as employees, investors, and the government. It highlights the company’s
economic contribution to the society by focusing on value creation rather than profit
alone.
 Horngren (2013) – Horngren emphasizes the role of VAS in understanding the
financial impact of a company’s operations on stakeholders. He stresses that the value
added is a measure of the company's efficiency in generating economic value through
its production process, which is then shared with its key stakeholders.
 Bhattacharyya (2006) – According to Bhattacharyya, the Value Added Statement
provides an important insight into the operational performance of a company by
reflecting how much value is added through its operations before any distribution to
external investors. It focuses on the internal wealth generation that helps assess a
company’s contribution to economic development.
Difference between Value Added Statement and Profit & Loss Account:
A Value Added Statement and a Profit & Loss Account (also known as the Income
Statement) are both financial statements, but they serve different purposes and focus on
different aspects of a company's financial performance.

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 Unit: 4 Value Added Statement

1. Purpose:
 Value Added Statement: Focuses on the value a company adds to its raw materials

through its operations. It shows how the company creates value from its inputs (such
as raw materials, labour, etc.), highlighting the contribution of the company itself to
its total output. It is typically used to assess the economic wealth created by the
company and its distribution among stakeholders (e.g., employees, government,
shareholders).
 Profit & Loss Account: Focuses on the profitability of the company over a specific

period. It shows the revenue, expenses, and profits or losses generated during that
period. Its main purpose is to indicate the company's financial performance and
whether it made a profit or loss.
2. Content:
 Value Added Statement: It includes the total revenue generated from sales minus the

cost of raw materials and other inputs. The difference is the "value added," which is
then allocated to various stakeholders such as wages, taxes, interest, dividends, and
retained earnings.
 Profit & Loss Account: Includes sales revenue, cost of goods sold (COGS), operating

expenses, and taxes, ultimately leading to the calculation of net profit or loss.
3. Focus:
 Value Added Statement: Focuses on the value generated by the company’s core

operations, ignoring non-operating income or expenses.

 Profit & Loss Account: Includes all income and expenses, including both operating

and non-operating items, giving a more comprehensive view of profitability.

4. Users:
 Value Added Statement: Primarily used by analysts, employees, and stakeholders

interested in understanding how much value the company creates and how it is
distributed among various parties.
 Profit & Loss Account: Used by investors, creditors, and other stakeholders interested

in evaluating the company’s profitability and financial performance over a period of

time.

5. Shown: Profit and loss account shows the expenses of incomes of operation
of the business and the final result of its operation. If shows the results from

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 Unit: 4 Value Added Statement

the view of owners only. VAS is prepared from the same figures, but it shows
the contribution made by various parties to added value. It is thus wider in
scope and gives more details then profit and loss account.
6) Net Amount: The value added statement shows net amount after deducting
from net sales value, the materials and other services purchased from outside,
while in profit and loss account all expenses, whether direct or indirect
whether relating to external services or to services purchase from outside are
deducted from sales.
7) Indicates: Value added statement indicates the social objectives of
business, while profit and loss account is profit-oriented and is prepared only
from the view point of owner.
8) Understanding: VAS is the new technique and yet a common man can
very well understand it. While the profit and loss account is a bit complicated,
contains jugglery of double entry book keeping and non-accountant reader
does not understand it properly.
9) Survive: No business enterprise can survive if it does not add to the value,
as it is not able to pay any amount to most of the parties particularly
shareholders, government etc. the employees could not co-operate and the
business cannot run. While in case of profit and loss account, the business
would continue even if there is loss, because it affects only the owners.
Example No. 1 The following are the balances in the accounts of a company for the year
2022-23.
Particulars Amount Particulars Amount
Turnover 23,00,000 Cash at Bank 98,000
Plant & Machinery (Net) 10,80,000 Printing and Stationery 22,000
Loss on Sales of Machine 75,000 Auditor’s Remuneration 28,000
Dividend to Ordinary Share Holders 1,46,000 Retained Profit (Opening B/S) 9,94,000
Debtors 1,95,000 Rent, Rates and Taxes 1,65,000
Creditors 1,27,000 Other Expenses 85,000
Stock of Materials Ordinary Share Capital Issued 15,00,000
(Raw Material, WIP and Finished
Goods)

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 Unit: 4 Value Added Statement

Opening Stock 1,60,000

Closing Stock 2,00,000
Raw Material Purchased 6,25,000 Interest on Borrowings 4,000
Employee State Insurance 35,000 Income Tax 2,76,000
Depreciation on Plant & Machine 2,00,000 Wages and Salaries 3,27,000
PF Contribution 28,000
Prepared Value Added Statement for the year 2022-23.
Example No. 2 The following figures are extracted from the books of Viraj limited.
Particulars Amount Particulars Amount
Sales 49,60,000 Staff Welfare Exp. 3,16,000
Purchases of raw materials 20,00,000 Insurance 52,000
Agent’s commission 40,000 Rent, Rates and Taxes 32,000
Stock of Material: Managing Director’s Rem. 1,68,000
Opening 1,70,000 Travelling Exp. 42,000
Closing 2,16,000 Advertisement 50,000
Finished Stock: Postage & Telegram 28,000
Opening 4,00,000 Salaries and Wages 12,60,000
Closing 4,80,000 Contribution to PF 1,20,000
Other Material (Net) 1,86,000 Subscription 4,000
Carriage Outward 44,000 Director Seating Fees 80,000
Depreciation 1,10,000 Interest on Bank Loan 36,000
Income Tax 2,00,000 Dividend to Shareholders 60,000
Audit Fee s 8,000 Retained Earnings 2,50,000
From the above you are required to prepare a statement detailing the sources and disposal of added
value. Does your statement corroborate the ascertain of the chairman of the company in the annual
general meeting that 75% of value added is the accounted by employee cost?
Example No. 3 The following are the balances in the accounts of the Dev limited for the year
ended on 31-03-2023.

Particulars Amount Particulars Amount

Turnover 46,00,000 Cash at bank 1,96,000
Plant & machinery 21,60,000 Printing and stationary 44,000
Loss on sales of machines 1,50,000 Auditor’s remuneration 56,000
Depreciation on plant & 4,00,000 Retained profit (Op. B/S) 19,88,000
machines
Dividend to shareholders 2,92,000 Retained profit 5,76,000
Debtors 3,90,000 Rent & rates 3,30,000
Creditors 2,54,000 Other expenses 1,70,000

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 Unit: 4 Value Added Statement

Stock of materials --- Ordinary share capital 30,00,000

issued
(Raw material, WIP and 3,20,000 Interest on borrowings 80,000
finished goods) opening stock
3,20,000
Closing stock 4,00,000 Income-tax 5,52,000
Raw materials purchased 12,50,000 Wages and salaries 6,54,000
PF contribution 56,000 Employee state insurance 70,000
Prepare value added statement of the company for the year 2022-2023 to gather with ratios that would
be interest to the employees of company.
Example No. 4 The following figures for a period were called out from the books of Value
Corporation.
Particulars Amount Particulars Amount
Sales 24,80,000 Advertisement expenses 25,000
Purchases of Raw Materials 10,00,000 Salaries and wages 6,30,000
Agent’s commission 20,000 Postage and telegrams 14,000
Consumable stores 25,000 PF contribution 60,000
Packing material 10,000 Director seating fees 40,000
Stationary 10,000 Subscription paid 2,000
Audit fees 4,000 Carriage 22,000
Staff welfare expenses 1,58,000 Interest on loan taken 18,000
Insurance 26,000 Dividend paid to shareholders 30,000
Rent, rates, taxes 16,000 Depreciation provided 55,000
Director’s remuneration 84,000 Income-tax provided 1,00,000
Travelling expenses 21,000 P&L A/C (Retained Earnings) 1,25,000
Fuel and oil 9,000 Opening Stock
Electricity 5,000 Raw material 85,000
Material used in repairs: Finished goods 2,00,000
Plant & machine 24,000 Closing Stock
Building 10,000 Raw material 1,08,000
Finished goods 2,40,000
From the above data you are required to prepared value added statement.
Example No. 5 Prepare value added statement from the following information of Vikas
Limited.
Income statement for the year ended on 31/03/2024.
Particulars Amount Amount
Sales 2,000
- Less
Material Consumed 800

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 Unit: 4 Value Added Statement

Service Purchased 100

Wages 400
Depreciation 100
Interest Paid 200 1,600
- Less
Tax – 50% 200
Profit before Tax 200

Example No. 6 The following figures for a period were called out from the books of Value
Corporation.
Particulars Amount Particulars Amount
Sales 71,42,400 Carriage Outward 63,360
Commission on Sales 57,600 Director’s Seating Fees 1,15,520
Purchase of Raw Material 28,80,000 Interest on Bank Loan 51,840
Stock of Raw Material Dividend to Shareholders 86,400
Opening Stock 2,44,800 Retained Earnings 3,60,000
Closing Stock 3,11,040 Depreciation 1,54,440
Other Materials (Net) 2,67,840 Income Tax 2,88,000
Finished Stock Audit Fees 11,520
Opening Stock 5,76,000 Travelling Expenses 60,480
Closing Stock 6,91,200 Advertisement 72,000
Staff Welfare Expenses 4,55,040 Postage and Telegram 40,320
Insurance 78,880 Salaries and Wages 18,14,400
Rent and Taxes 46,080 Contribution to PF 1,72,800
Managing Director Remuneration 2,41,920 Subscription 5,760
From the above data you are required to prepared value added statement.
Example No. 7 The following are the balances in the accounts of Maruti Company for the
year 2022-23.
Particulars Amount
Sales 27,60,000
Loss on Sale of Machine 90,000
Depreciation on Plant and Machine 2,40,000
Printing and Stationery 26,400
Auditor’s Fee 33,600
Retained Profit (Opening Balance) 11,92,800
Raw Material Purchased 7,50,000
Interest on Borrowings 48,000
Wages and Salaries 3,92,400

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 Unit: 4 Value Added Statement

PF Contribution 33,600
Retained Profit for the Year 3,45,600
Dividend to Share Holder’s 1,75,200
Rent, Rates and Taxes 1,98,000
Stock of Materials
(Raw Material, WIP and Finished Goods)
Opening Stock 1,92,000
Closing Stock 2,40,000
Other Expenses 1,02,000
From the above data you are required to prepared value added statement.

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