Check sibling questions

Certain Incomes not taken While Calculating Income Method

Transfer Income

It refers to any income received without providing any goods and services in return

Example - Old age pension, donation, charity

Why Transfer Income Not Included Why Calculating National Income.JPG

Income from Sale of Second hand goods

it is not included as amount is already covered on amount received on sale of original goods

Exception - We will take commission income of brokers on sale of second hand goods

Treatment of Second Hand Goods.JPG

Treatment of Brokerage on Sale of Second Hand Goods.JPG

Income from Sale of shares and debentures

Exception - We will take commission income of brokers on sale of shares and debentures

Profit or Loss on Sale of Shares and Debentures.JPG

 

Windfall gains (Lotteries ,horse race etc)

They also do not contribute to any production activity

Why lottery Income Not Included in National Income.JPG

Payments from Past Savings (Gift tax ,interest tax, death duties)

They are part of past wealth and do not contribute to any production activity

Payments from Past Savings (Gift tax ,interest tax, death duties).JPG

 

Question 16

Calculate National Income.

Particulars  ₹  in crores 
(i) Mixed income of self employed  200
(ii) Old age pension  20
(iii) Dividends  100
(iv) Operating surplus  900
(v) Wages and salaries  500
(vi) Profits  400
(vii) Employers' contribution to social security schemes  50
(viii) Net factor income from abroad  -10
(ix) Consumption of fixed capital  50
(x) Net indirect taxes  50

Answer

Step 1

We calculate Compensation to Employees

= wages and salaries + Employer's contribution to social schemes

= 500 + 50 = 550

Step 2

We calculate National Income

Calculation of National Income
Different Factor Incomes  
Operating Surplus 900
Compensation to Employees 550
Mixed Income 200
Total (Domestic Income NDP FC 1650
Add NFIA -10
NNP FC (National  income) 1640

 

What is Net Current Transfers from Rest of World

It is the difference between

Transfer Income from Rest of World to India and

Transfer Income from India to Rest of World

Example - Foreign Aids, grants, remittance from workers from outside country to their family members

Note

These are not included while calculating National income

as per Income Method

as these are Factor Income

and not transfer Income

What is Net Current Transfers from Rest of World..JPG

Question 17

Calculate NNP at FC.

Particulars   ₹ in crores 
(i) Net current transfers  from rest of the world 80
(ii) Wages and Salaries  600
(iii) Net indirect taxes  75
(iv) Net Factor income from abroad -20
(v) Rent and interest  160
(vi) Corporation tax  40
(vii) Mixed Income of the self-employed  280
(viii) Undistributed profit  60
(ix) Dividend  20
(x) Consumption of fixed capital  120

Answer

In this question, we are not given Profit directly

We are given Dividend, Undistributed Profit and Corporation Tax

We calculate Profit by totaling all 3

Step 1

Lets Calculate Profit

= Dividend + Undistributed Profit + Corporation Tax

= 60+20+40 = 120

Step 2

Calculation of National Income
Different Factor Incomes  
Rent and Interest 160
Compensation to Employees 600
Profit 120
Mixed Income 280
Total (Domestic Income NDP FC 1160
Add NFIA -20
NNP FC (National  income) 1140

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Davneet Singh is a graduate from Indian Institute of Technology, Kanpur. He has been teaching from the past 12 years. He provides courses for Maths and Science at Teachoo.