Describe the methods used to calculate value added. How does value Essay - 4

Describe the manners used to calculate value added. How does value added bestow towards understanding the connections betwee - Essay ExampleValue added concept of income measurement has been viewed as the increase in the wealth of an economic body. It is traditionally rooted to the evaluation of guinea pig income in macro economics, measured by national economy productive performance.2 This concept is referred to as National or Domestic product and represents a special(prenominal) periods national economy. This is a common use of this concept but it has also been applied in many new(prenominal) different areas of concern operations and economics as a positive performance and economic gauge. This makes value added a measure and indicator of an economic entitys performance and has a fairly long period of application in the field of economics.3 Value added represents a calculated value, and for this reason, it is well related to accounting. It is also contrasted from the tradition al calculation of income in that, it can be and has been used in all the three accounting systems i.e. managerial accounting, financial accounting and the national accounting system. It is also distinguishable from income calculation whereby value added is constantly described internationally as a difference of expenses from revenues. It can be defined in two ways that will be discussed below and this gives value added concept another critical characteristic commonly known as the dichotomy of value added.4 Subtractive method is the first method of calculating the value added and it is defined as Value Added (VA) = O I. Where O = Output I = Input. This means that when being compared to accounting income, it is perceived as the earn figure. The value expressed is the value that an economic body, such as a person, an industry or a company adds to the products and services it purchased or received from other entities during its creative or own productive economic activities.5 In the second one, additive method, the value added is represented by the total sum of the distributed parts that shape the created wealth. This is done with respect to the reality that all the created wealth is well distributed i.e. by being allocated in some way. When considering a company, value added calculation is defined as VA (Value Added) = RE + RG + RCP + NAP. Where RE = Remuneration of employees RG = Remuneration of government RCP = Remuneration of capital providers NAP = not appropriated income i.e. retained earnings.6 The two formulas above disclose the characteristic marrow that value added concept has. This concept can be divided into social aspect, represented by the additive method, and performance aspect which is articulated by the reductive method. This shows that in addition to economic information given by this concept, value added also offers social information through identification of the part of the yield that goes to every(prenominal) contributor of the whole p rocess in a company.7 Value added concept has evolved besides its historical principal function in national accounting to some(prenominal) other uses and applications in the three financial, national and managerial accounting. The two sided feature of value added i.e. performance and social characteristic, is depicted clearly by the concrete and possible applications. Hence it has been argued as a way to estimate productivity of an economic body through their way of using productive factors.8 This makes the