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As per this method, we calculate Value addition by different firms and add it
From this, we reduce Depreciation, Indirect Taxes and Add Net Factor Income from Abroad to calculate National Income.
Steps Followed in Value Added Method
- We identify and classify production units(sectors)
- We calculate their Value Added Separately and total it to get Gross Value Added at Market Price
- We reduce net indirect taxes and Depreciation to Arrive at Domestic Income
- We add net factor income from Abroad to get National Income
Example 2
From the information given below, Calculate
Value added by Firm A and Firm B ---> Output - intermediate Consumption
Gross Domestic Product at Market Price ---> Total Value added of A and B
Net Domestic Product at Factor Cost ---> Domestic income
Question 4
| Particulars | ₹ in crores |
| (i) Subsidies | 1 |
| (ii) Sales | 100 |
| (iii) Closing stock | 10 |
| (iv) Indirect taxes | 5 |
| (v) Intermediate consumption | 30 |
| (vi) Opening stock | 20 |
| (vii) Consumption of fixed capital | 15 |
Answer
What is Gross Value Added at Factor Cost?
We know that
GDP at Market Price is equal to Total Value Added by All Sectors/Companies
From this Depreciation is Reduced
So we get Net Value Added at Market Price
| GDP MP (Gross Value Added at Market Price) |
| Less |
| Depreciation |
| Net Value Added at Market Price |
Example 3
Calculate Net Value Added at Market Price
| Particulars | Amt in Crores |
| Sales | 90 |
| Closing Stock | 25 |
| Opening Stock | 15 |
| Indirect Taxes | 10 |
| Depreciation | 20 |
| Intermediate consumption | 40 |
| Purchase of raw material | 15 |
| rent | 5 |
Question 10
Find Net Value Added at Market Price
| Particulars | Amt in Lakhs |
| Fixed Capital good with a life span of 5 years | 15 |
| Raw Materials | 6 |
| Sales | 25 |
| Net change in stock | -2 |
| Taxes on Production | 1 |
What is Gross Value Added at Factor Cost?
We know that
GDP at Market Price is equal to Total Value Added by All Sectors/Companies
From this Net Indirect Taxes is Reduced
So we get Gross Value Added at Factor Cost
GDP MP (Gross Value Added at Market Price)
Less
Net Indirect Taxes (Tax-Subsidy)
Gross Value Added At Factor Cost
Example 4
Calculate Gross Value added at Factor Cost
| Particulars | Amt in thousands |
| Sales | 500 |
| Opening Stock | 30 |
| Closing Stock | 20 |
| Purchase of Intermediate Products | 300 |
| Purchase of Machinery | 150 |
| Subsidy | 40 |
Note
Net Indirect Taxes
=Taxes-Subsidy
= 0 - 40
= - 40
Sometimes Value of Output is not given in question
It is calculated by multiplying Quantity and Price per unit
OUTPUT = Price per Unit* No of Units Sold
Example 10
Calculate Gross Value added at Factor Cost
| Particulars | Amt |
| Units of Output Sold | 1000 |
| Price per unit of output | 30 |
| Depreciation | 1000 |
| Intermediate Cost | 12000 |
| Closing Stock | 3000 |
| Opening Stock | 2000 |
| GST | 6000 |
Sometimes Sales, Opening and Closing Stock is given in Question
We have to calculate value of Output
= Sales + Change in Stock
= Sales + Closing Stock - Opening Stock
Example 5
Calculate Gross Value Added at Market Price
| Particulars | Amt in lakhs |
| Depreciation | 20 |
| Domestic Sales | 200 |
| change in stock | -10 |
| Exports | 10 |
| Single use Producer goods | 120 |
| Net Indirect Taxes | 20 |
What is Net Value Added at Factor Cost?
We know that
GDP at Market Price is equal to Total Value Added by All Sectors/Companies
From this Net Indirect Taxes is Reduced
So we get Gross Value Added at Factor Cost
From this, Depreciation is Reduced to arrive at Net Value Added at Factor Cost
GDP MP (Gross Value Added at Market Price)
Less
Net Indirect Taxes (Tax-Subsidy)
Gross Value Added At Factor Cost
Less Depreciation
Net Value Added at Factor Cost
Example 6
Calculate Net Value Added at Factor Cost
| Particulars | Amt in lakhs |
| Subsidy | 40 |
| Sales | 800 |
| Depreciation | 30 |
| Exports | 100 |
| Closing Stock | 20 |
| Opening Stock | 50 |
| Intermediate Purchase | 500 |
| Purchase of machinery for own use | 200 |
| Import of raw material | 60 |
Question 3
Calculate Net Value Added at Factor Cost
| Particulars | Amt in crores |
| Purchase of machinery for production use | 100 |
| Sales | 200 |
| Intermediate Cost | 90 |
| Indirect Taxes | 12 |
| Change in Stock | 10 |
| GST | 6 |
| Stock of Raw material | 5 |
Question 8
Calculate Net Value Added at Factor Cost
| Particulars | Amt |
| Consumption of Fixed Capital | 600 |
| GST | 400 |
| Output Sold | 2000 |
| Price per unit of output | 10 |
| Net change in stock | -50 |
| Intermediate cost | 10000 |
| Subsidy | 500 |
Example 9
Calculate Net Value Added at Factor Cost
| Particulars | Amt in lakhs |
| Durable use producer goods with a life span of 10 years | 10 |
| Single use producer goods | 5 |
| Sales | 20 |
| Unsold output produced in the year | 2 |
| Taxes on production | 1 |
NCERT Questions
No questions in this part
