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Value Added Statement Explained


CA Pulkit Sharma

2013-07-29

Value Added Statement Explained

VALUE ADDED STATEMENT (VAS) is a more transparent way of presenting the financial spending of company. The Traditional Profit Loss Account is little difficult to understand by person form Non-Accounting field. Value Added Statement provides an alternative to companies to present the results of companies in a more understandable and transparent manner.

Value Added Statement if used along with Traditional Profit and Loss Account can be of very help, Traditional Accounts explain the income and Expenses whereas VAS explains the distribution of Profit to each stakeholder.

Most of us may be unaware of the term VAS, but it is used by many European companies to present results internally and externally.

Let’s try to understand the VAS by these FAQS.

What is Value Added Statement?

Value Added Statement is Financial Statement which shows how the wealth of a company/Enterprise is created through utilization of various Resources and how this wealth is distributed or allocated among various stakeholders.

How different is Value Added Statement from Traditional Profit and Loss Account?

Traditional Profit and Loss Account present the net profit of the Company/Enterprise, whereas Value Added Statement represents the contribution of each Resources and allocation of wealth among various stakeholders.

How old is concept of Value Added Statement and does any Indian Company Uses It?

Concept of Value Added Statement originated long back but much recognition in 1975 when Accounting Standard Board (ASB) of UK recommended using the VAS along with traditional Reporting’s. In India VAS is not widely used, Companies might be using it internally but uses of VAS is not much publicized.

How VAS can help our company?

Whether you are a labour oriented company or any other company, your employees are sure to have a question. Why company pay us so less? If we see traditional Financial Statement, this question cannot be answered. But if you prepare VAS, employees get the answer by looking at the Allocation of Total wealth to them. Since Value Added Statement (VAS) presents the wealth Allocation, Employees can compare their allocation with other stakeholders and understand why they are paid this much. VAS not only solves the labour related issues but can also be useful for other stakeholders to understand their positions.

Can you explain the Traditional Reporting Statement and Value Added Statement with an Example?

A ROUGH TRADITIONAL PROFIT AND LOSS ACCOUNT 

PARTICULARS

AMOUNT

AMOUNT

Revenue From Business Operations

Sales

Services

 

XXX

XXX

XXX

Less: Operating Cost

Raw Material

Manufacturing Expenses

Service Utilized

Labour Expenses

 

XXX

XXX

XXX

XXX

XXX

Operating Profit

 

XXX

Less: Indirect Expenses

Admin Expenses

Office Expense

Audit Expenses

Other Indirect Expenses

 

XXX

XXX

XXX

XXX

XXX

Less: Interest Expenses

 

XXX

Net  Profit

 

XXX

Less: Taxes

 

XXX

Profit After Taxes

 

XXX

Dividend Distributed

 

XXX

Retained Earning

 

XXX

A ROUGH VALUE ADDED STATEMENT

PARTICULARS

AMOUNT

AMOUNT

Revenue From Business Operations

Sales

Services

 

XXX

XXX

XXX

Less: Raw Material

Manufacturing Expenses

Service Utilized

Labour Expenses

And all other cost except

Employees Contribution

Director Contribution

Taxes (Government)

Interest on Long Term Finance

Dividend

Any Reserve

Depreciation

XXX

XXX

XXX

XXX

XXX

Value Added by Business Operations

 

XXX

Add: Indirect Incomes

Add/Less: Extraordinary Items

 

 

XXX

XXX

GROSS VALUE ADDED

 

XXX

APPLICATION OF VALUE ADDED

GROSS VALUE ADDED ALLOCATED

AMOUNT

Percentage

To Employees

To Directors

To Government(Taxes)

To Providers of Loans & Finance

To Equity Holders

To Company Growth

XXX

XXX

XXX

XXX

XXX

XXX

X%

X%

X%

X%

X%

X%

Total

XXX

100%

 

Which Companies should use VAS?

Any company which wants to have one. VAS not only helps in understanding the Earnings better but also helps in solving the dispute as entire allocation of earnings gets presented in VAS.

 

For further clarification please ask your Doubts in Forum under subcategory Accounts.