Value added refers to the amount of value or utility created by a producer over and above the value of raw materials bought by him. For example a firm boys cotton worth Rs. 2000 and sells yarn to the textile mills for Rs. 3000. That is why the value added by the spinning mill Rs. 3000-2000 = 1000. In order to arrive at the amount of value added, we have to deduct the value of intermediate goods from the value of output.
The value added at market price and the gross value added at market price constitute two different types of value added output. Value added can be measured by deducting intermediate consumption from value of output. The net value added at market price is the difference between gross value and consumption of fixed capital or depreciation .
The net value added of factor cost is the total payment to the factors of production in the form of wage, rent, interest and profit. It is calculated by subtracting net indirect taxes from the net value added at market price.
The value of output is the money value of all goods and services produced in an economy during a given period. It is equal to the multiplication of quantity of output and its price Value of output is calculated on the basis of market price. The value of output includes the value of intermediate goods, and change in stocks.
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The computation of value of output in the govt. sector is different from private sector. This is because the Govt desires community welfare. Govt does not pay in the firm of rent and interest. It also pays no indirect services nor receives subsidies. The dates regarding depreciation are not available with the govt.
The chief difference between value added and value of output is that value of output includes the value of intermediate goods while the value added excludes the inclusion of intermediate goods. If the value of intermediate products is deducted from the value of output we get value added. Thus [Value added = value of output – value of intermediate goods]