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
1.Purchase of materials
2.Depreciation
3.Sales
4.Excise tax
5.Opening stock
6.Intermediate consumption
7.Closing stock
Solution:-- GVA MP
(Rs. In crores)
30
12
200
20
15
48
10
= Value of output – Intermediate Consumption
Sales + change in stock – Intermediate
Consumption
= 200+ (10 -15) – 48
= 200 - 5 - 48
= 200 - 53
= Rs.147 Crores
NVAMP
NVAFC
= GVAMP –Depreciation
= Rs. 147 – 12
= Rs. 135 crores
= NVAMP – Indirect tax
= 135 – 20
= Rs. 115 Crores
Q 2:- Calculate gross value added at factor
cost from the following data.
Items
1. Sales
2. Subsidies
3. Consumption of fixed capital
4. Closing stock
5. Purchase of raw materials
6. Opening stock
7. Indirect tax
(Rs. In crores)
100
2
5
10
50
15
10
Solution:- GVAMP = Value of output – Intermediate
consumption
= Sales+change in stock - 50
= 100+ (10-15) – 50
=100- 55
= 45 crores
GVAFC = 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:-- GVAMP = Value of output – Intermediate consumption
= Sales +change in stock – 500
= 800 + (20- 50) – 500
=800- 530
= 270 crores
NVAMP = GVAMP – Dep
=270 – 30
= 240 crores
NVAFC = NVAMP + 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
–
1.
2.
3.
4.
5.
6.
7.
Items
Compensation of employees
Mixed income of self employed
Net factor income from abroad
Rent
Profit
Consumption of fixed capital
Net indirect taxes
8. Interest
9.
Operating Surplus
(Rs. In crores)
800
900
- 50
350
600
200
250
450
1400
Solution:- ( Income method)
GDPMP = Compensation of employees + mixed income of self
employed + operating surplus + depreciation +net
indirect taxes
=200+250+800+ 1400 (350+600+450)+900
=3550
GNPMP = GDPMP + NFIA
= 3550 +(-50)
= 3500
NNPMP = GNPMP – Dep.
= 3500- 200
= 3300
NNPFC = NNPMP- NIT
=3300- 250
=Rs. 3050 crores
Calculation of National income by expenditure
method.
• Expenditure 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 GDPMP:-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.
income by income method and
Items
method.
1. Compensation of employees
2. Net factor income from
3. Net indirect taxes
4. Profit
5. Private final consumption expenditure
6. Net domestic capital formation
7. Consumption of fixed capital
8. Rent
9. Interest
10. Mixed income of self employed
11. Net exports
12. Govt. final consumption expenditure
13. Operating surplus
14. Employer’s contribution to social security
scheme
expenditure
(Rs. In crores.)
1,200
- 20
120
800
2,000
770
130
400
620
700
- 30
1,100
1820
300
Solution:- (Income method)
GDPMP = 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
• GNPMP = GDPMP + NFIA
•
= 3970 + (-20)
•
=3950 crores
• NNPMP = GNPMP- Depreciation
•
=3950- 130
•
=3820 crores
• NNPFC = NNPMP__ - NIT
•
= 3820- 120
•
= Rs. 3700 crores
•
•
•
•
•
•
•
•
Solution:- ( Expenditure Method)
GDPMP = 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
GNPMP = GDPMP + NFIA
=3,970 + (-20)
=3,950 crore
NNPMP = GNPMP – Depreciation
= 3,950 – 130
= 3,820 crore
NNPFC = NNPMP – NIT
= 3,820 – 120
= Rs.3,700 crore