Describe value added method and its precautions
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Clearly, value added method measures the contribution of each producing unit in the domestic economy avoiding any possibility of double counting. Symbolically: Net value added at FC = Gross output – intermediate consumption – depreciation – net indirect taxes.
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The value-added means the calculation of the income of a country through production.
Precautions of value-added method:
- In the value-added method sometimes the goods are counted double
- Any fee for second-hand products are not included in it
- The expenses of household services are also not included
- It only includes the services which are based on market
- Domestic services are not included
The formula of Value Added Method :
Value-added = value of output - intermediate consumption
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