Posted by Anjali Kaur on Apr 18, 2021

# Value Added Method: National Income

Value added, as the name speaks for itself. It reflects the actual contribution by each factors during the production process. This method is popularly used to avoid the problem of double counting. In this post, You will be able to absorb this method in your mind in a simplified way. Let’s learn Value Added Method: National Income.

Let’s understand this topic in detail.

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The value-added method or production method is another method to calculate the national income of a country. Under this method, we only add value to a product at every stage of this production. In your exams, you will use this method only when they ask you to calculate the value added by any firm: like firm X, firm Y, etc.

The easiest way to calculate this is by using the following table. Just follow the sequence:

This table, or consider this as your formula will be used, where you find the questions on calculating the value added by the firm. I will recommend you to go through the Value of output method link.

## Points to be kept in mind

1. If sales are given, that is, sales by firm X, it is considered to be full or total sales.

2. In case sales are mentioned like; sales by firm X to household, then you need to find total sales by using the formula: Sales = Domestic Sales + Exports

3. Change in Stock = Closing Stock – Opening Stock (How to memorise this? It’s easy ‘C’ comes first in alphabets so its Closing stock – Opening stock (Because O comes later in alphabets)

4. Purchases are like the expenditures incurred by the firm, so include all the intermediate purchases or purchase by 1 firm from another.

5. Value added = Sales + Change in Stock – Purchases.

6. Value added will always be a positive number.

## Practice

1. Find out ‘Value Added by Firm B’ from the following data:

Solution. Use the formula table and start placing the values from this question in it.

So, the value added by B is 40.

2. Calculate Value Added by Firm A and Firm B from the following data:

Solution. Follow the same table, and fill in the particulars given.

I hope it is understandable to you all.

Happy Learning!

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