 # NATIONAL INCOME ACCOUNTING Three methods of measuring national income:-- 1.Value added method 2.Income method 3.Expenditure method Value added method:--

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NATIONAL INCOME ACCOUNTING Three methods of measuring national income:-- 1.Value added method 2.Income method 3.Expenditure method Value added method:-- Value added method measures the value added by each producing enterprise in the production process in the domestic territory of a country on an accounting year. In other words value added is defined as the difference between total value of output of a firm and value of inputs bought from other firms.

Q 1. Calculate net value added at factor cost from the following data. Items (Rs. In crores) 1.Purchase of materials 30 2.Depreciation 12 3.Sales 200 4.Excise tax 20 5.Opening stock 15 6.Intermediate consumption 48 7.Closing stock 10 Solution:-- GVA MP = Value of output – Intermediate Consumption Sales + change in stock – Intermediate Consumption

= 200+ (10 -15) – 48 = 200 - 5 - 48 = 200 - 53 = Rs.147 Crores NVA MP = GVA MP –Depreciation = Rs. 147 – 12 = Rs. 135 crores NVA FC = NVA MP – Indirect tax = 135 – 20 = Rs. 115 Crores

Q 2:- Calculate gross value added at factor cost from the following data. Items (Rs. In crores) 1. Sales 100 2. Subsidies 2 3. Consumption of fixed capital 5 4. Closing stock 10 5. Purchase of raw materials 50 6. Opening stock 15 7. Indirect tax 10 Solution:- GVA MP = Value of output – Intermediate consumption = Sales+change in stock - 50 = 100+ (10-15) – 50 =100- 55 = 45 crores GVA FC = GVAMP – Indirect taxes + subsidies = 45 – 10 +2 = Rs. 37 crores

Q 3. From the following data calculate the net value added at factor cost. Items (Rs. In Lacs.) 1.Subsidy 40 2.Sales 800 3.Depreciation 30 4.Exports 100 5.Closing stock 20 6. Opening stock 50 7.Intermediate purchases 500 Solution:-- GVA MP = Value of output – Intermediate consumption = Sales +change in stock – 500 = 800 + (20- 50) – 500 =800- 530 = 270 crores NVA MP = GVA MP – Dep =270 – 30 = 240 crores NVA FC = NVA MP + subsidy = 240 + 40 = Rs. 280 crores

CALCULATION OF NATIONAL INCOME BY INCOME METHOD The income method measures national income from the side of payments made to the primary factors of production in the form of rent, wages,interest and profit for their productive services in an accounting year. Components of domestic income:- 1.Compensation of employees (This is the reward or compensation paid to employees for rendering productive services. It includes wages and salaries,Employer’s contribution to social security schemes, dearness allowance, bonus, city allowance, house rent allowace, leave travelling allowance etc.) 2.Operating surplus:- It includes rent, profit and interest. Profit includes corporate tax, dividend and undistributed profit.

3.Mixed income of self employed:- Income of own account workers like farmers, doctors, barbers etc, and unincorporated enterprises like small shopkeepers, repair shops retail traders etc, is known as mixed income. Q 1:- From the following data, calculate national income by income method –Items (Rs. In crores ) 1.Compensation of employees 800 2.Mixed income of self employed 900 3.Net factor income from abroad - 50 4.Rent 350 5.Profit 600 6.Consumption of fixed capital 200 7.Net indirect taxes 250 8.Interest 450 9.Operating Surplus 1400

Solution:- ( Income method) GDP MP = Compensation of employees + mixed income of self employed + operating surplus + depreciation +net indirect taxes =200+250+800+ 1400 (350+600+450)+900 =3550 GNP MP = GDP MP + NFIA = 3550 +(-50) = 3500 NNP MP = GNP MP – Dep. = 3500- 200 = 3300 NNP FC = NNP MP - NIT =3300- 250 =Rs. 3050 crores

Calculation of National income by expenditure method. E xpenditure method measures final expenditure on ‘Gross Domestic Product at market price” during a period of accounting year. In other words “ national income is measured at the point of expenditure. Components of GDP MP :-- 1.Private final consumption expenditure. 2.Govt. final consumption expenditure. 3.Gross fixed capital formation. 4.Net Exports. 5.Domestic capital formation. 6.Interest on national debt. 7.Investment expenditure.

Q2. From the following data,Calculate national income by income method and expenditure method. Items (Rs. In crores.) 1. Compensation of employees 1,200 2. Net factor income from - 20 3. Net indirect taxes 120 4. Profit 800 5. Private final consumption expenditure 2,000 6. Net domestic capital formation 770 7. Consumption of fixed capital 130 8. Rent 400 9. Interest 620 10. Mixed income of self employed 700 11. Net exports - 30 12. Govt. final consumption expenditure 1,100 13. Operating surplus 1820 14. Employer’s contribution to social security scheme 300

Solution:- (Income method) GDP MP = Depreciation + Net indirect taxes +Compensation of employees(Wages+ salaries……) + Operating surplus ( rent + profit + Interest) +mixed income of self employed =130+120+1,200+1820+700 =3970 GNP MP = GDP MP + NFIA = 3970 + (-20) =3950 crores NNP MP = GNP MP - Depreciation =3950- 130 =3820 crores NNP FC = NNP MP__ - NIT = 3820- 120 = Rs. 3700 crores

Solution:- ( Expenditure Method) GDP MP = Depreciation + private final consumption expenditure + net domestic capital formation + net exports + Govt. final consumption expenditure. = 130 + 2,000 + 770 + (- 30) + 1,100 = 3,970 crore GNP MP = GDP MP + NFIA =3,970 + (-20) =3,950 crore NNP MP = GNP MP – Depreciation = 3,950 – 130 = 3,820 crore NNP FC = NNP MP – NIT = 3,820 – 120 = Rs.3,700 crore