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Value Added statement

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Value Added statement is another form of understanding performance or profitability of an enterprise. It shows how the benefits of the efforts of an enterprise are shared between employees, providers of finance, the state and towards and replacement and expansion.

The Value Added statement is a financial statement which shows how much value (wealth) has been created by an enterprise through utilization of its capacity, capital, manpower and other resources and allocated to the following stakeholders:

The workforce – for wages, salaries and related expenses;

The financiers – for interest on loans and for dividends on share capital.

The government – for corporation tax.

The business – for retained profits.

A statement of VA represents the profit and loss account in different and possibly more useful manner.

The conventional VA statement is divided into two parts – the first part shows how VA is arrived at and the second part shows the application of such VA.

Historical Background

The concept of value added is considerably old. It originated in the U.S. Treasury in the 18th Century and periodically accountants have deliberated upon whether the concept should be incorporated in financial accounting practice. But actually, the value added statement has come to be seen with greater frequency in Europe and more particularly in Britain. The discussion paper ‘Corporate Report’ published in 1975 by the then Accounting Standard Steering Committee (now known as Accounting Standards Board) of the U.K. advocated the publication of value added statement along with the conventional annual corporate report. In 1977, the Department of Trade, U.K. published ‘The Future of Company Reports’ which stated that all substantially large British companies should include a value added (V.A.) statement in their annual reports. Also, a few companies in the Netherlands include V.A. information in their annual reports, but the disclosures often fall short of being a full V.A. statement and also the method of arriving at V.A. is grossly non-standardized. In India, Britannia Industries Limited and some others prepare value added statement as supplementary financial statement in their annual reports.

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Article by Raju Choudhary Raju has written 537 articles. If you like This post, you can follow CAknowledge on Twitter. Subscribe to CAknowledge feed via RSS or EMAIL to receive instant updates.