A firm produces goods worth Rs 800 in a year. It uses intermediate goods worth Rs 300, and the value of its capital consumption during the year is Rs 50. What is the net value added of the firm?
Answer & explanation
Correct answer: option 2
The correct answer is Option (2) → Rs 450
Given:
Value of output = Rs 800
Intermediate goods = Rs 300
Capital consumption (depreciation) = Rs 50
Net value added = Value of output − Intermediate goods − Depreciation.
Gross value added = 800 − 300 = Rs 500
Net value added = 500 − 50 = Rs 450
Rs 500 is the gross value added, which still includes wear and tear.
NCERT (2026-27): “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. … 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.” |