Value added statement

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Value added statement represents the social character of production, something which was not included in very traditional profit and loss accounting. The added value is created during production process as the consequence of mixing the effort and co-operatation of teams in the company[1]. Value added concept was firstly used in 1790 in North American Census of Production. The value added statement (VAS) is one of the basic and most important statements for stakeholders. Probably the main purpose of its creation was to show stakeholders information about the company in more understadable way for them[2].Value added statement was called also a new form of enterprise accounting and is placed in the context of progressive accounting [3]. The reasons why companies are publishing Value Added Statamets are[4]:

  1. Communicating employees information about the company' situation,
  2. Being evaluated better by annual financial statement awards (having more points),
  3. Showing social responsibility of the company,
  4. Facilitating negotiations about wages,
  5. Meeting employees expectations.

Example of Value Added Statement

Example of Value added statement is presented below. It is a difference between value of produced goods (at selling price) versus purchases. Below example values are shown in $[5]:

  • Goods Produced at Selling Price value is 1.000.000
  • Purchases of External Goods and Services value is 200,000
  • Total Value Added by Production value is 800.000

Sources of Value Added would be wages, taxes, interest, depreciaton, profit etc. as below:

  • Wages and Salaries with value 400.000,
  • Taxes with value 100.000,
  • Interest with value 20.000,
  • Depreciation with value 180.000,
  • Profit with value 100.000,
  • Total Value Added with value 800.000.

Expanded Value Added Statement

Expanded Value Added Statement (EVAS) is alternative framework in evaluating economic, environmental and social value added. It has roots several contexts of accounting[6]:

  • Mainstream accounting which is traditional accounting (Income Statement, Balance Sheet) and progressive accounting (Value Added Statement),
  • Critical accounting which is not neutral and shaped by society,
  • Sustainabiity which meets needs of the present
  • Social accounting which is more about behavioural aspect, includes supplemental social accounting and integrated social accounting.

Advantages of Value added statement

Value added statement is a tool used by businesses to measure the total value of their production process. It is a useful indicator of the amount of value being added to a product or service during the production process. The advantages of using a value added statement include:

  • Improved managerial decision-making - The value added statement helps managers to identify and prioritize areas for improvement, and to develop strategies for increasing the value created.
  • Improved efficiency - By measuring the value added during the production process, businesses can identify areas of inefficiency and take steps to reduce them.
  • Improved profitability - By measuring the value added, businesses can better identify areas of potential profitability and make changes to increase their profits.
  • Improved customer satisfaction - By measuring the value added, businesses can identify areas where customer satisfaction can be improved.
  • Increased employee engagement - By showing employees the value they are adding to the production process, businesses can encourage greater commitment and engagement from their staff.

Limitations of Value added statement

Value added statements are an important tool for measuring the performance of a company and its contribution to the economy, but there are some limitations to consider when using this type of analysis. These include:

  • Lack of comparability: Value added statements can be difficult to compare and benchmark between different companies due to differences in the way they are calculated and reported.
  • Inaccuracies: The information provided in value added statements can be inaccurate due to the use of estimates and assumptions in the calculation process.
  • Limited scope: Value added statements are generally limited to measuring the performance of a company on a single level, such as a sector or industry. This can limit their usefulness in providing an overall picture of a company's performance.
  • Time lag: Value added statements are often out of date due to the time required to collect and compile the necessary data. This can limit the usefulness of the information.
  • Complexity: The calculation process for value added statements can be complex and time-consuming, and may require specialist knowledge to interpret the results accurately.

Other approaches related to Value added statement

Value added statement is just one approach to analyse the economic activity of a company. Here are some of the other approaches that can be used to evaluate the economic performance of a company:

  • Activity Based Costing (ABC): Activity Based Costing is a method of assigning costs to products or services based on the activities associated with them. This approach calculates the cost of each activity in the production process and assigns it to the product or service.
  • Life Cycle Costing (LCC): Life Cycle Costing is a method of assessing the total cost of a product or service over its entire life cycle. This approach takes into account the cost of acquisition, maintenance, disposal, and other costs associated with the product or service.
  • Total Quality Management (TQM): Total Quality Management is a systematic approach to improving the quality of products and services. This approach focuses on using customer feedback to identify and address quality issues.
  • Balanced Scorecard (BSC): Balanced Scorecard is a strategic planning tool that is used to assess the performance of a company based on a set of financial and non-financial metrics. This approach helps to evaluate the performance of a company in terms of its financial, customer, internal process, and learning and growth objectives.

These are just a few of the other approaches that can be used to evaluate the economic performance of a company. Value added statement is just one of the tools that can be used to gain insight into a company's economic activity. It is important to consider all available approaches in order to get a complete picture of a company's performance.

Footnotes

  1. ↑ Burchell S., Clubb C., Hopwood A.G. (1985), p.388
  2. ↑ Staden C. J. (2000), p.2
  3. ↑ Mook I. L. (2007), p.20
  4. ↑ Staden C. J. (2000), p.3
  5. ↑ Mook I. L. (2007), p.20
  6. ↑ Mook I. L. (2007), p.14


Value added statement — recommended articles
Activity-based management — Measurement of innovation — Origins of controlling — Added value chain — Activity measure — Structural productivity — Balanced scorecard — Quality cost — Strategic cost management

References

Author: Bartłomiej Zegarliński

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