Accounting: the expanded

Value of Outputs

In order to calculate the amount of value added, the first step is to assess the total outputs of the organization and assign a comparative value to them. In the first column, F1, the amount indicated as ‘direct value’ is revenue that would be received for the building had it been constructed under traditional building standards ($5,250,000). In the second column, F2, the amount of additional revenue received as a result of covering the increased costs to construct the building according to sustainable building standards is shown ($106,050). The third column, F TTL, adds these two figures together to total a ‘direct’ value of $5,356,050. The fourth and fifth columns, SOCENV1 and SOCENV2, include the values that were calculated by Kats et al. for the social and environmental benefits of building to sustainable standards (Table 4.3). SOCENV1 refers to the potential benefits that would go directly to the customers, while SOCENV2 includes an estimate of potential value that would be gained by larger society. The final column (C TTL) adds together the financial, social and environmental values to end up with $6,281,275.

Subtracting External Purchases

Returning to our earlier definition, value added is a measure of wealth that an organization creates by “adding value” to the raw materials, products, and services through the use of labour and capital. The total outputs (combined) represent the value placed on the organization’s goods and services, but in order to provide those goods, SBC purchased goods and services from external sources. The cost of these purchases is taken from the organization’s audited financial statements. As shown in Table 4.1, SBC’s total expenditures in its audited financial statements are $5,101,000, but in order to arrive at the amount expended externally on goods and services, the costs related to capital and labour have to be subtracted from the total. Therefore, $5,101,000 is reduced by the employee wages and benefits ($1,250,000), the amortization of capital assets ($100,000) and taxes ($51,000) and the resulting amount is the cost of externally purchased goods and services ($3,700,000). The externally purchased goods and services as they relates to what would have been spent to construct a traditional building is shown in F1 ($3,600,000), and the additional costs to make the building sustainable are shown in F2 ($100,000).

88