Which of the following statements are correct?(A) Value added of a fi…

Which of the following statements are correct?

(A) Value added of a firm = Value of production − Value of intermediate goods used.
(B) Value added is a stock variable.
(C) Net value added does not include the wear and tear that capital has undergone.
(D) Replacement investment is the same as depreciation of capital.

Choose the correct answer from the options given below:

Answer & explanation

Correct answer: option 4

The correct answer is Option (4) → (A), (C) and (D) only

Value added is what a firm adds to its inputs. Gross value added includes depreciation; net value added does not.

(A) Value added of a firm = Value of production − Value of intermediate goods used. — True. Value added = value of production − intermediate goods used.

(B) Value added is a stock variable. — False. Value added is a flow variable, measured over a year.

(C) Net value added does not include the wear and tear that capital has undergone. — True. Net value added leaves out the wear and tear of capital.

(D) Replacement investment is the same as depreciation of capital. — True. Replacement investment is the same as depreciation.

NCERT (2026-27): “2.2.1 The Product or Value Added Method … Therefore the value added of a firm is, value of production of the firm – value of intermediate goods used by the firm. The value added of a firm is distributed among its four factors of production, namely, labour, capital, entrepreneurship and land. Therefore wages, interest, profits and rents paid out by the firm must add up to the value added of the firm. Value added is a flow variable.”

“2.2.1 The Product or Value Added Method … We have already introduced the concept of depreciation, which is also known as consumption of fixed capital. Since the capital which is used to carry out production undergoes wear and tear, the producer has to undertake replacement investments to keep the value of capital constant. The replacement investment is same as depreciation of capital. If we include depreciation in value added then the measure of value added that we obtain is called Gross Value Added. If we deduct the value of depreciation from gross value added we obtain Net Value Added. Unlike gross value added, net value added does not include wear and tear that capital has undergone. …”