Income Method of Calculating National Income

Transcript

Income Method of Calculating National Income As per this Method We calculate factor income earned by all factors of production Like Rent, Interest, Wages and Salaries, Profit etc Sum total of this is equal to NDP FC(Domestic Income) In this ,we add, NFIA (Net factor income from Abroad) to arrive at National Income Format Calculation of National Income Different Factor Incomes Rent 10 Royalty 50 Interest 30 Compensation to Employees 40 Profit 20 Mixed Income 30 Total (Domestic Income NDPFC) 180 Add NFIA 20 NNP FC (National income) 200 Note In the above method, We do not deduct Depreciation and Net indirect Taxes Total of All Incomes is equal to Domestic income In this, we add Net Factor Income from Abroad to arrive at National Income (NDPFC) Components of Factor income Rent It refers to that part of National Income which arises from ownership of land and Building In easy language, it is income earned by landlord from tenant by giving his property on lease Royalty It is the income earned by granting leasing right of subsoil assets Subsoil assets means assets which are found inside the earth Example-Coal, Petroleum, Mineral Reserves Example - A mining company takes a mine on lease from Govt against which it pays Rs 20 lacs per year This 20 lacs amount is Royalty Income of Government Interest It includes interest income earned by lending funds to production units only Example - Loan taken by a Factory from Bank to Purchase Machine Difference between Rent and Royalty Income Rent income It is income earned for use of Land and Building Example Rent Income earned by Landlord from Rent of Factory Building Rent of Godown It is normally fixed Rent Example 30000 per month Royalty Income It is income earned for extraction of sub oil assets Example Royalty Income earned by Govt from Coal Mines petroleum Reserve It is Variable in Nature (depends upon output) Example Rs 1000/Kg coal extracted Interest Income Earned Money (Loan) Interest Different types of Loan Business Loan Persona Loan Govt Bonds Inter Company Deposits Loan for Production Purpose Loan for Consumption Purpose Loan by Govt from Public Loan by One firm to anOTHER Only this covered in this Method All these not covered All these not covered All these not covered WHAT IS MIXED INCOME Example 1 Suppose Doctor starts Clinic at Rented Premises He pays Rent He pays Salary to Nurse He buys Medical Equipment Total Expenses 30000 10000 20000 60000 Income Earned Profit Earrned 1000000 60000 We can say Income Earned of 100000 is distributed to different fators of Production as Rent labour Capital Profit Total 30000 10000 20000 40000 100000 Example 2 Suppose Doctor starts Clinic at own house Rent paid Salary to Wife (acting as nurse) Use of Own Medica Equipment Total Expenses 0 0 0 0 Income Earned Profit Earrned 100000 100000 This income earned of 100000 Cant be distribured among different fators of production This is called Mixed Income FORMAT FOR CALCULATING DOMESTIC INCOME AND NATIONAL INCOME Calculation of National Income Different Factor Incomes Rent 10 Royalty 50 Interest 30 Compensation to Employees 40 Profit 20 Mixed Income 30 Total (Domestic Income NDPFC) 180 Add NFIA 20 NNP FC (National income) 200 As per this Method We calculate factor income earned by all factors of production Like Rent,Interest,Wages and Salaries,Profit etc Sum total of this is equal to NDP FC(Domestic Income) In this ,we add,NFIA (Net factor income from Abroad) to arrive at National Income Note Depreciation not reduced in his method What is OPERATING SURPLUS OPERATING SURPLUS = INCOME FROM PROPERTY (Rent,Royalty,Interest) INCOME FROM ENTRPRENURSHIP (profit) It does not include Compensation to Employees Mixed Income HOW TO CALCULATE NATIONAL INCOME By Normal Method By Operating Surplus Calculation of National Income Different Factor Incomes Rent 10 Royalty 50 Interest 30 Compensation to Employees 40 Profit 20 Mixed Income 30 Total (Domestic Income NDPFC) 180 Add NFIA 20 NNP FC (National income) 200 Calculation of National Income Different Factor Incomes Operating Surlus 110 Compensation to Employees 40 Mixed Income 30 Total (Domestic Income NDPFC) 180 Add NFIA 20 NNP FC (National income) 200 What are Factor Payments It is the Remuneration Paid to Factors of Production Factors of Production Remuneration Paid Land Rent Capital Interest Labour Wages Entrepreneurship Profit ote It does not include interest on Loan taken by public for consumption purpose (Personal Loan) Loan taken by Govt from Public (Interest on Govt bonds) Loan take by one firm to another (inter company loans) Compensaion to Employees t refers to total amount paid by employer to employee for rendering production services It includes\ Wages and Salaries (paid in cash)\ Amount paid in kind (Any non monetary benefit given) Employer Contribution to Social Security Schemes (Example - PF ESI Employer Contribution) However, it does not include Any Reimbursement of Office Expenses (Example-Travelling expenses of employee for office work reimbursed) Any facility which is compulsory for the employee (Example-Compulsory uniform for employee) Employee Contribution to Social securities (PF,ESI) Profit It is the amount earned by entrepreneur for his services Out of this profit, some amount is paid as income tax to Government (Called Corporation tax) Balance is distributed as Dividend to Shareholders or Retained for future use (called Retained Earning) Hence, Profit=Corporate Tax + Dividend + Retained Earning Mixed Income It is income earned by own account workers (Self employed, small businessman, farmers etc) They contribute entrepreneurship as well as land, capital etc So income earned by them is mixture of Rent income + Profit + Interest Income etc Hence, it is called Mixed Income