Calculate Net value added at factor cost ( NVAFC) from the given set of data:
| Value of output | 500 |
| Intermediate consumption | 100 |
| Indirect taxes | 30 |
| Depreciation | 20 |
| Subsidies | 40 |
| Purchase of machinery | 50 |
Answer & explanation
Correct answer: option 3
The correct answer is Option (3) → 390
Given:
Value of output = 500
Intermediate consumption = 100
Depreciation = 20
Indirect taxes = 30
Subsidies = 40
Net value added at factor cost = Value of output − Intermediate consumption − Depreciation − Net indirect taxes.
Gross value added at market price = 500 − 100 = 400
Net value added at market price = 400 − 20 = 380
Net indirect taxes = 30 − 40 = −10
NVAFC = 380 − (−10) = 390
Purchase of machinery is investment, not an input used up in production, so it is left out. Because subsidies are larger than indirect taxes here, factor cost is higher than market price.
NCERT (2026-27): “2.2.1 The Product or Value Added Method … 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. For example, let us say a firm produces Rs 100 worth of goods per year, Rs 20 is the value of intermediate goods used by it during the year and Rs 10 is the value of capital consumption. The gross value added of the firm will be, Rs 100 – Rs 20 = Rs 80 per year. The net value added will be, Rs 100 – Rs 20 – Rs 10 = Rs 70 per year. …” “2.2.4 Factor Cost, Basic Prices and Market Prices … Factor cost includes only the payment to factors of production, it does not include any tax. In order to arrive at the market prices, we have to add to the factor cost the total indirect taxes less total subsidies. …” |