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Volume - II , Issue - II June - 2012
ISSN : 2250 -1630

Research Paper

Social Performance through Value Added Reporting

An Empirical Study of Reliance Industries Ltd.

Mr. Ramesh H. Davada

M.Com., M.Phil., PGDCA
Ph.D Research Scholar
Department of Commerce and Business Administration
Saurashtra University
Rajkot 360005

Abstract

Value added concept is comparatively new concept but is gaining considerable importance those days,
particularly for taxation and managerial performance purposes. A growing number of companies in
India have started including a value added statement (VAS) on the lines of the companies in western
countries, as a part of their published annual reports and accounts. Value added reporting is part of
financial reporting that shows value addition by firm during the specific of time and their application
towards Employees , Government, Capital providers and retained by the firm himself towards
development and expansion activities. Value added is meaningful measure of corporate performance
rather than conventional measures based on traditional financial accounting and can be particularly
useful for employees oriented approach, which will be more fruitful discussion with employees and
can be especially useful in productivity arrangements. In this context this paper tries to explain
performance evolution by Reliance Industries Limited by the value added reporting, from 2004-05 to
2008-09 and what method of their social reporting and social responsibility as pharmaceutical firm

Key Words: - Accounting System, Value Creation & Disposal, Knowledge Accounting &
Finance

Section I

Introduction

Accounting is a language of business. Accounting is an analysis and interpretation of accounting

records containing financial and economic information of transactions and other events profitably
to a business. To operate a business profitably and to star solvent, profitability and solvency of a
firm should be measured at regular intervals in order to know the aggregate position since alarming
is the art of measuring, describing and interpreting financial and economic activities of a business,
it is essential, for an accounting system, to record, classify and summaries the entire. Lot of events
since accounting is a language of business, it should be communication to the parties related to an

Copyright 2012. Ramesh H. Davada. This is an open access refereed article distributed under the
Creative Common Attribution License which permits unrestricted use, distribution and
reproduction in any medium, provided the original work is properly cited. 244
Research Expo International Multidisciplinary Research Journal ISSN : 2250 -1630

integrated in its act ivies. Such communication is made through corporate reporting process.
It has assumed goat significances in recent years. In many countries the users of such reports.
There are many parties who are much interested such as equity shareholders, lenders,
bankers, financial institutions, tax-levying authorities, regulating authorities, government and
various authorities in the accounting reporting of companies. By statutes, all the companies
and corporate entities are reporting minimum information mandatorily.

According to S.Gupta, Value added means excess of turnover plus income from services
over the cost of goods and services.
Value added amount computed by deducting from sales revenue plus income from services,
the cost of bought-in-materials and services excluding depreciation is termed as Gross
Value Added (NVA).

The added value concept has got many uses. Economists have uses the VA concept for long
in a Macro sense. The G.N.P. is calculated as under: -
G.N.P= Wages + Rent + Interest + Profit.

Section - II

About Industry
Reliance Industries Limited

Reliance Industries Limited is India's largest private sector conglomerate, it one of India's
private sector Fortune Global 500 companies, being ranked at 206th position (2008). It was
founded by the Indian industrialist Dhirubhai Ambani in 1966. Ambani has been a pioneer in
introducing financial instruments like fully convertible debentures to the Indian stock
markets. Ambani was one of the first entrepreneurs to draw retail investors to the stock
markets. Critics allege that the rise of Reliance Industries to the top slot in terms of market
capitalization is largely due to Dhirubhai's ability to manipulate the levers of a controlled
economy to his advantage. Though the company's oil-related operations form the core of its
business, it has diversified its operations in recent years. After severe differences between the
founder's two sons, Mukesh Ambani and Anil Ambani, the group was divided between them
in 2006. In September 2008, Reliance Industries was the only Indian firm featured in the
Forbes's list of "world's 100 most respected companies".

Section -III

Research Methodology

Data Collection
This research paper is based on the 7 years financial performance of the Cipla
pharmacuticuls Ltd. which is one of the leading IT company in India.

The data of Cipla pharmacuticuls Ltd. for the year (2004-05 to 2010-11) used in this study
.have been taken from secondary sources e.g. published annual reports of the company.

Tools of Analysis

For the analysis of value added reporting data are analyze in a following way:

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I. Value Added Statement.

II. Statistical Tools:
For assessing the behaviors of data statistical techniques hey been also used
1) Mean
2) Coefficient of correlation
3) Growth Rate
4) Student T- Test

Objectives of the Study

This research paper is based on the following objectives:
1) To understand the concept of Value Added Reporting
2) To evaluate performance of the sample company with value added accounting
3) To study intra firm comparison of last seven years performance

Hypothesis of the Study

The following hypotheses are framed for this study:
I. Null Hypothesis (H0)
1) There is no significant relation between Sales and Gross value added
2) There is no significant relation between Sales and Net value added
II. Alternative Hypothesis (H1)
1) There is significant relation between Sales and Gross value added
2) There is significant relation between Sales and Net value added

Limitation of the Study

1) This research paper is a micro nature research based in the sample Reliance
Industries Limited
2) This research paper is based in the 7years financial performance of the sample
company from 2004-05 to 2008-09.

Review of Literature:
Value Added Reporting is developing concept that why some studies conducted in context
with the performance through value added reporting to the corporate sector. The researcher
has studied those works which are as follows:

1. The study made by Dr. Mohana Rao who published a book in Value Added Reporting - in
Theory, Practice and Research. He has studied concept of value added, value added-
computation formula. Value added ratios analysis and value added reporting has been examined
in the united states in forms of its relevance to capital market. He studied analysis of value added
statement of SAIL (Steel Authority of India Ltd.) part of creation of value added and disposal of
value added. He made several suggestions. For the strenghethening the financial soundness.
2. Kaushal A. Bhatt has done his M.phil under guidance on Dr. Prof. S. J. Parmar, Saurashtra
Uni. Thesis on Value Added As A Performance Measurement Tool.(A combative study of
GSFC & GNFC) for the period from 2001-02 to 2005-06. He had made an attempt to analysis of
value added statement of GSFC & GNFC. He had studied distributed to net value added towards
Employees, Government, Capital Providers and Owner (Retained in Business). He had also
analyzed value added ratios between comparatively studies on GSFC & GNFC. He also
suggested to GNFC better performance compare to GNFC through analyzed value added ratios.
3. Ravi M. KISHORE has written a book Advance Management Accounting published by
Taxmann Publishing Company, New Delhi (2005). Which covers the concept of value added,
application of value added and generation of value and its also formats of value added statement
in detail.

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4. Dr. Sanjay J. Bhayani has written a book Practical Financial Statement Analysis published
by Raj book Enterprise the study covered 18 cement companies for the period from 1990-91 to
1996-97. He studied analysis of activity, analysis of financial structure and value added analysis.
He made several suggestions for the strenghethening the financial soundness.
5. Dr. Pradeep Singh, has written an article in The Management Accountant, August, 2008.
On the value added reporting with the title Social Performance Through Value Added
Reporting-- An Empirical study of Lupin Lab. Ltd. In this article, he has analyzed to explain
performance volutionby Lupin Ltd. By the value added reporting from 1995-96 to 2004-05. He
has suggested to analysis and interpretation of Value Added Statement and Value Added Ratios
could be concluded that the management of Lupin Lab. Ltd. Has served to the society vary well
as total value added has been distributed among the employees, government, financial
Institutions, banker & shareholders, on the other hand it also contributed of value added forwards
the growth and development of the company retained in the business.

Section - IV

Analysis & Interpretation Value Added Reporting

Accounting procedure: In case of value added reporting accounting procedure will be divided in two
parts:

1). Generation of Value Added and,

2). Application of Value Added.

1. GENERATION OF VALUE ADDED

Here,-VA= means Value Addition, VA=S+I-C, S means sales, I means Income from Services
and, C Cost of brought in material and services. 43

2. APPLICATION OF VALUE ADDED

The amount of value added is mainly distributed among four major contributors like employees,
government ,provider of capital and the owner, if any excess remaining after the distribution, this
will reinvested business for future development.

1.Distribution of value added to employee:-

Employees are one of the major claimants of the value added. The employees include workers and
all type of the staff. The items like wages and salaries, Managing Directors Remuneration, Directors
sitting fees, contribution to provident Fund, Staff welfare Expenses, etc. are included.
2. Distribution of value Added to Government:
The Central and State Government provides not only the infrastructural facilities but also conditions.
The taxes and duties like customs duty, excise duty, sales tax, income tax, wealth tax, rates and
taxes, etc. are included here. The amount of subsidizing on export should be deducted from the
Governments share.
3. Distribution of Value Added to Providers of Capitals:-
Financial institutions are also gets Value Added in the form of interest. This includes interest on
bank loan, interest on term loans, interest on debentures, dividends, etc.
4. Distribution of Value Added to Owners:-
Shareholders who are the owners of the organization provide Equity Share Capital to the business
unit. All payments made to them such as interim dividend, final dividend, bonus share are included
under this heading. The balance of value added, if any should be shown separately under the heading
of Retained Earning or ploughed back of profit.
The Value Added Statement for Reliance Industries Limited. Is shown in Table - I and Table - II for
the year 2004-05 to 2008-09.

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Table-1

RELIANCE INDUSTRIES LTD.

Value Added Statement
(2004-05 to 2008-09)
1. Generation of Value Added (Rs. In Crore)

2004-05 2005-06 2006-07 2007-08 2008-09

Particulars Amou Amou Amoun Amoun Amoun
% % % % %
nt nt t t t
[ A.] Total
Sales 73464. 90633. 98. 142575 96. 155384 98.
119988 99.4
Revenue And 57 98.02 51 70 .31 00 .17 79
.65 7
Services
(Including
Excise Duty 1481.8 1.98 1198.3 1.3 5928.7 4.0 1899.7 1.2
633.51 0.53
& Service 8 2 0 6 0 2 1
Tax) 74946. 100 91831. 100 120622 100 148504 100 157283 100
Add: 45 83 .16 .07 .89
Other Income
TOTAL
REVENUE 47254. 62734. 68. 84645. 106445 71. 116210 73.
[A] 70.1
58 63.05 17 31 02 .33 68 .68 86
[ B.] Cost Of 8
5364.1 7.16 2709.1 2.9 3950.4 2580.0 1.7 6093.1 3.8
Bought In 3.28
6 6 5 8 0 4 5 7
Materials & 52618. 65443. 71. 88595. 73.4 109025 73. 122303 77.
Services: 70.21
74 33 23 50 5 .33 42 .83 76
I. Materials 22327. 26388. 28. 32026. 26.5 29478. 26. 34980. 22.
II. Cost of 29.79
71 50 74 66 5 74 58 06 24
Services
3788.4 4947.7 5.3 6896.4 6784.9 4.5 7712.8 4.9
TOTAL 5.05 5.72
3 5 9 6 1 7 8 0
[I+II]=[B]
Gross 18539. 24.74 21440. 23. 25130. 20.8 32693. 22. 27267. 17.
Value Added 28 75 35 20 3 83 02 16 34
[A-B]
Less:
Depreciation
100 115.65 135.55 176.35 147.08
Net Value
Added
NVA Growth
Rate (Index)

Sources: Complied and Calculated from Annual Reports Of Reliance Industries. Ltd.
[from 2004-05 To2008-09]

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Table-2
RELIANCE INDUSTRIES LTD.
Value Added Statement
(2004-05 to 2008-09)
2. Application Of Value Added (Rs. In Crore)

2004-05 2005-06 2006-07 2007-08 2008-09

Particulars Amo % Amo % Amou % Amou % Amou %
unt unt nt nt nt
857.5 4.6 1469. 6.7 2590.8 10.3 2738.1 3017.5 11.
[A] Payment 8.38
9 3 26 0 9 1 6 7 07
To Employees
8756. 47. 9738. 44. 9435.3 37.5 10263. 31.3 6325.7 23.
[B] 60 23 07 38 0 5 39 9 3 20
Contribution
To
Government
[C] Payment 4.2 8.2
1045. 5.6 934.5 1232.2 1631.2 2237.1
To Capital 6 0
13 4 6 9 4.90 4 4.99 0
Providers
1474. 7.9 1393. 1440.4 5.73 1086.5 3.31 1816.2
Shareho 6.3 6.6
07 5 52 4 2 7
lders(Di 5 6
vidend)
Lenders 6405. 34. 7905. 36. 10431. 41.5 16974. 51.9 13870. 50.
(Interes 89 55 34 03 28 1 52 2 51 87
t)

[D] Retained
In Business
1853 10 2194 25130. 32693. 27267.
100 100 100 100
9.28 0 0.75 20 83 18
Net Value
Added[A+B+C
+D]

(Sources: Complied and Calculated from Annual Reports Of Reliance Industries. Ltd.
[from 2004-05 To2008-09] )
INTERAPRETATION
VALUE ADDED REPORTING

Testing Of Hypothesis of The Study

The following hypotheses are framed for this study:
Null Hypothesis (H0)
1. There is no significant relation between Sales and Gross value
added
2. There is no significant relation between Sales and Net value added

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Alternative Hypothesis (H1)

1. There is significant relation between Sales and Gross value added
2. There is significant relation between Sales and Net value added
A coefficient of correlation is calculated between two variables Sales (X) and Gross value
added(Y) it is that shows higher degree and Net value added (Z)

Section V

Conclusion
Researcher may conclude that as compare to generation of value added registered
increasingly due to increases of productivity, operational efficiency and market share by
the company our main conclusion are as

In Reliance Industries Ltd.

Revenue from sales shows better performance. It continuously increasing
73464.57 crore up to 155384.17 crore in the years 2004-05 2008-09
respectively and registered 211.51% growth during the study period.
Cost of bought in material and services significantly not controlled by the
management especially period of the study. It range 70.21% in 2004-05 to
77.76% in 2008-09.
Contribution of the Government has decreased significantly that shows
Company reduce social contribution by in way of excise duty, custom duty
and other taxes.
Payment to Employees has been increased 857.59 crore in 2004-05 to
3017.57 crore in 2008-09. It shows that company declared many incentive
schemes for the employees.

Payment to Lenders inform of interest shows decreasing trend during the study
period except in the year 2008-09. It ranged been 3.31% in 2007-08 to 7.95%
in 2004-05.
Payment of shareholder in form of dividend only 5.60% of Net Value
Addition by company that shows that company follows a conservative
dividend policy during the study period and most of the profit will be retained
for development activities.
Re-invest in business is 42.98% in the foam of Retained Earnings. It is an
appropriate amount for investment and development point of view.

Suggestions
The mandatory suggestions to Reliance Industries Limited are given below:
1. The company should try to reduce their Cost of Bought in materials to
maximum their Net Value Added.
2. The company should also reduce cost of services like administration,
marketing and other expenses to meet the highest Net Value Added.
3. The Excise duty & other taxes on industries which have been
continuously on the rise during the study period should be lowered down
by the central government so that cost of production and selling price of
industries products can be reduced and thus sales of industries products &
services can be further promoted.

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4. The companies should reduce individual expenses by reducing these

expenses companies can transfer more amounts to Retained in Business.
5. The companies should try to increase rate of dividend because dividend is
part of Earning and create good image in market.
6. The company should try to increase more Benefit to Employees to motive
through incentive schemes or bonus schemes especially Reliance
Industries Limited.

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Please Cite this Article as :

Davada, Ramesh. Social Performance through Value Added Repotting An Empirical

Study of Reliance Industries Ltd Research Expo International Multidisciplinary Research
Journal 2.2 (2012) : 244-252. <www.researchjournals.in.>.

Volume - II , Issue - II June - 2012 252