Social Performance through Value Added Statement

In a developing economy the real profitability of an industry needs to be assessed neither on the basis of its increasing rate of return nor on investment in relative terms. In recent decades another or additional approach has been used for measuring the success of an organisation i.e. “Value added statement” (VAS). The value added statement can be defined as a statement of the value created by a business during an accounting period. Value added in the words of Brown and Howard, is “Sales value less the cost of bought in goods and services used in producing those sales.”1 Value added is the positive difference between the value of the goods or services produced by a team, i.e., sales revenue, and the value of the goods and services purchased from outsiders, i.e., the cost of bought in material and service.2 The term ‘value’ may also be know as ‘wealth created’ as the Company Report defines it as the wealth the reporting activity able to create by its own and its employees efforts.”3 The profit and loss statement shows the performance of a company as it concerns the shareholders, while the value added statement shows the performance of a company as it affects employees, providers of capital and the government. John Sizer states that, “Value added is out of the ‘value added cake’ that a company rewards its various stakeholders i.e., shareholders, directors, managers, employees, inland Revenue etc.”4 In other words, it can be said that the value added is the residue of sales after providing the cost of goods and services used in producing those sales. It includes the employee’s cost, the cost of infrastructural facilities, and the cost of capital, dividends and depreciation on fixed assets. The concept of ‘value added’ has been in use in several European countries and in the U.K. This concept, though originally introduced with the idea of imposing value added tax, has relevance in management accounting also. Economists have used this term in macro sense for the computation of incremental generation of gross national product or gross domestic products. Investment made in an enterprise comprises the investment in share by shareholders, borrowings from outsiders like debenture-holders, specified financial institutions, commercial banks, creditors etc. if such an investment does not generate wealth i.e., value added, it may be termed as a misuse of public funds. The concept of SOCIAL PERFORMANCE THROUGH VALUE ADDED STATEMENT