Business, Legal & Accounting Glossary
A Value Added Statement is a financial statement that depicts wealth created by an organisation and how that wealth is distributed among various stakeholders.
The value-added statement (also known as an added-value statement) is a financial statement showing how much wealth (the value-added) has been created by the collective effort of capital, employees, and others and how it has been allocated for within an accounting period.
Value added is normally calculated by deducting materials and external services from turnover.
The value added is then allocated to employees in the form of wages, to lenders and shareholders in the forms of dividends and interest, and to the Government in the form of taxes, with a proportion typically being retained within the company for reinvestment purposes.
This is a financial statement that shows how much value (wealth) has been created by an enterprise through the utilisation of its capacity, capital, manpower, and other resources, and how it is then allocated among different stakeholders (employees, lenders, shareholders, government, etc.) within an accounting period.
Value Added Statements are financial statements that show how a business creates value and distributes that wealth to diverse stakeholders. Employees, shareholders, the government, creditors, and the wealth retained in the enterprise are among the numerous stakeholders.
Profit is estimated for multiple stakeholders by a corporation, according to the concept of Enterprise Theory. The profit earned by the joint efforts of management, personnel, capital, and the exploitation of its potential that is distributed among its many stakeholders is referred to as value-added.
Consider a manufacturing company. A typical business would purchase raw materials from the market, process the raw ingredients and put them together to make the completed goods. After that, the finished goods are sold on the market. The value added by the firm is the additional work that the firm does to the raw materials in order for them to be sold in the market. The difference between the value that customers are willing to pay for completed items and the cost of materials is also known as value-added.
Sales Revenue | 1000 |
Less: Cost of bought-in goods and services | 200 |
Value Added | 800 |
Application of Value Added | |
Employee Benefits | 250 |
To capital providers (Creditors and Lenders) | 100 |
Taxes | 100 |
Value retained (depreciation and expansion of business) | 350 |
Value Added | 800 |
The difference between sales and the cost of bought-in products and services, as shown in the preceding example, represents the value generated by the organisation. The second half of the statement describes the distribution of the organization’s value-added. The firm contributes $800, $250 of which is used for employee perks. $100 is paid out in loan interest and dividends to owners. Taxes give an additional $100 to the government. Whereas $350 is maintained for current business expansion and a portion of it is set aside for depreciation. As a result, the value-added statement not only provides the value added by the firm, but also the distribution of that value across various stakeholders.
Profit is calculated by deducting all costs incurred throughout the revenue generation process. The value-added, on the other hand, simply deducts the cost of purchased goods and services. Profits are intended for shareholders, whereas value-added is intended for stakeholders, which include shareholders. As a result, value-added is a broader word.
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This glossary post was last updated: 11th August, 2022 | 0 Views.