MEASUREMENT OF N Y BY INCOME METHOD

MEASUREMENT OF N Y BY INCOME METHOD

                             

During production of goods and services , firm sector hiring  the services of factor of productions (Land, Labour, Capital and Entrepreneur) and in returns to their services paying Rent, Interest, profit and Compensation of employee. From the producers side it is payment and from factor side it income. That's why ,Sometime this methods is called 'Factor payment methods' and 'Distributed share method'

'National Income is the sum total of factor income earned by normal resident of country during an accounting year by working both within and outside the country'

Different steps: -

A. Identification & Classification of factor income : -

Factor income divided into three group : -

1. Compensation of employee : - It includes wages and salaries in cash and kind, employer's contribution to social security scheme, pension of retirement .

2. Operating Surplus: - Rent , royalty, interest and profit. Profit include Corporation tax, dividend and saving of companies ( Undistributed profit)

3. Mixed income: - This is the income of self employed person like, small shopkeeper, barber, Lawyer , private doctors etc.

B. Calculation of Net Domestic product at FC or Domestic income: -

     NDP at FC = Compensation of Employee  + Operating Surplus + Mixed Income

C . Estimation of Net National Income at FC OR National Income: -

   Sum of Net Domestic product at FC and Net Factor income from abroad is equal to Net National product at factor cost or National income of the country,

 Net factor income from abroad: - It is the difference between income earned residents of a country from outside country and income earned by foreigner in the same country.

This is consists of three (i) Net Compensation of employee from abroad. (ii) Net income from property and entrepreneurship (iii) Net retained of the companies at abroad.

Precautions : -

The following should not included in the calculation of National Income by income method: -

1. Value of intermediate goods is not included.

2. Income from the sale of second hand good is not included.

3. The Value of illegal activities or goods and services not included.

4.The value of leisure time activity .

5. Income from the sale of second hand goods not included.

6.. Windfall gains should not be included.

7. Indirect taxes not included when NY calculated at FC but when it is calculated at MP than IT included in the Calculation.and corporate tax and income tax

The following activities should be included in the calculation of NY by income method:

1. Imputed rent of owner occupied houses.

2. Broker's income from the sale of second hand goods or Commissioned from the sale of share and bonds.

3. Imputed value of self consumption goods.

                                         THANKS 

                                                                                  RAMESH KUMAR,

                                                                                  PGT (ECO.)

                                                                                  KV FARIDKOT CANTT

                                                                                      

NATIONAL INCOME AT A GLANCE BY INCOME METHOD

FORMULA 

COMPENSATION OF EMPLOYEE

+

OPERATING SURPLUS

+

MIXED INCOME SELF EMPLOYED

=

NET DOMESTIC PRODUCT at FC

+ 

NFIA

= 

 NET NATIONAL PRODUCT at FC

OR

 NATIONAL INCOME

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