There are two methods for preparing value added statement.
1. Subtractive Approach (Showing value Added Generated):
Under this method, value added is determined as net turnover which is obtained by subtracting the cost of materials from the sales proceeds. In other words under this method, value added is found out by subtracting cost of materials from sales revenue.
2. Additive Approach (Showing Value Added Applied):
Under this method, the net added value is computed by adding the distribution of added value made to the stakeholders of the output employed to turn out the product, such as wages, salaries, taxes, interest, dividends, and retained funds. In other words, under this method, applies as follow items are adjusted with subtractive method.
a. Simple Value Added Statement:
A value added statement which does not consider stock adjustment is called a simple value added statement .The following format is used to prepare a simple value added statement:
b. Value Added Statements With Stocks:
Sometimes, opening and closing stock of raw materials, work-in-progress and finished stocks are given. Then, these stocks should be adjusted while preparing value added statement. In these situation, opening and closing stocks of work-in-progress and finished goods are adjusted with net sales but opening and closing stock of raw materials are adjusted to purchase of materials.
