Explain the value added method with the help of an example

Explain the value added method with the help of an example.
or
Explain in brief, the steps involved in the estimation of value added by a firm, or
Mention the various steps of value added method of measuring National Income.
or
Give an outline of the steps involved in the estimation of national product by value added method.
or
Describe the steps involved in the estimation of National Income by value added method. State any two precautions that must be taken while estimating National Income by this method.

Value added method is that method which measures the contribution of each producing enterprise to production in the domestic territory of the country.
(i) First step It involves classification of productive enterprises into three categories viz:
(a) Primary sector (b) Secondary sector
© Tertiary sector
(ii) Second step Value of output (of a producing unit) is determined by multiplying the quantity of the product by its market price. Gross. Value Added is estimated by deducting the intermediate consumption from the value of output. Depreciation is deducted from Gross Value Added to get Net Value Added.
(iii) Third step Net Indirect Taxes are deducted from Net Value Added at Market Price to get Net Value Added at Factor Cost which is equal to domestic income. Net Factor Income from Abroad is added to net domestic income to get National Income.
Two Important Precautions :
Following precautions are to be taken while using product or value added method:
(i) Value of the sale and purchase of second hand goods is not included in value added. .
(ii) Commission earned on account of the sale and purchase of second hand goods is included in the estimation of value added.