The income approach is an evaluation methodology used for real estate estimation, which is computed by dividing the capitalisation tariff or price by the net operating income of the rental payments. Investors use this computation to value properties based on their profitability.
This methodology approaches national income from the allocation facet. To put it in other words, this methodology quantifies national income at the stage of allocation and appears as the income paid or received by individuals of the nation. Hence, under this methodology, national income is attained by adding up the earnings of all the individuals of a nation. Individuals earn by contributing their own services and the services of their properties such as land and capital to the national production.
Also Read: Circular Flow of Income In Two-Sector Economy
Hence, national income is computed by summing up the rent of a land, salaries of employees and wages, interest on capital, surplus profits of entrepreneurs (including unallocated corporate profits), and earnings of self-employed people. This methodology of evaluating national income has a great advantage of including the allocation of national income among different earning groups such as:
- Workers
- Landlords
- Entrepreneurs
- Owners of capital
As mentioned earlier, the sum of final expenditures in the economy must be equivalent to the income received by all the factors of manufacturing taken together. This follows from the simple notion that the revenues earned by all the enterprises put together must be allocated among the factors of manufacturing as profits, salaries, interest earnings, wages, and rents.
| Q.1 Calculate the NDP at FC by using the income method. | ||
| S. No. | Items | Amount
( in crores)Â |
| (i) | Income from domestic products accruing to private sector | 4,000 |
| (ii) | Income from domestic products accruing to public sector | 2,000 |
Solution:
NDP at FC = Income from domestic products accruing to private sector + Income from
     domestic products accruing to public sector
    = Rs. 4,000 crores + Rs. 2,000 crores
    = Rs. 6,000 Crores
| Q.2 Calculate the NDP at FC by using the income method. | ||
| S. No. | Items | Amount
(in crores) |
| (i) | Compensation of employees | 1,000 |
| (ii) | Operating surplus | 2,000 |
| (iii) | Mixed income of self-employed | 5,000 |
| (iv) | Income from domestic products accruing to public sector | 10,000 |
Solution:
  NDP at FC = Compensation of employees + Operating surplus + Mixed income of
     self-employed + Income from domestic products accruing to public  Â
                       sector
  = Rs. 1,000 crores + Rs. 2,000 crores + Rs. 5,000 crores + Rs. 10,000
                       crores
  = Rs. 18,000 crores
| Q.3 Calculate the NDP at FC by using the income method. | ||
| S. No. | Items | Amount
(in crores) |
| (i) | Income from domestic products accruing to private sector | 14,000 |
| (ii) | Savings of non-departmental enterprise | 12,000 |
| (iii) | Income from property and entrepreneurship to government administrative departments | 23,000 |
Solution:
Income from domestic products accruing to public sector = Income from
     property and entrepreneurship accruing to government administrative departments
     + Saving of non-departmental enterprisesÂ
    = Rs. 23,000 crores + Rs. 12,000 crores
= Rs. 35,000 crores
Â
NDP at FC = Income from domestic products accruing to private sector +
    Income from domestic products accruing to public sector
   = Rs. 14,000 crores + Rs. 35,000 crores
= Rs.49,000 crores
| Q.4 Calculate the NDP at FC by using the income method. | ||
| S. No. | Items | Amount
(in crores) |
| (i) | Compensation of employees | 3,000 |
| (ii) | Operating surplus | 2,000 |
| (iii) | Mixed income of self-employed | 1,000 |
| (iv) | Savings of non-departmental enterprise | 4,000 |
| (v) | Income from property and entrepreneurship to government administrative departments | 5,000 |
Solution:
NDP at FC = Compensation of employees + Operating surplus + Mixed income of Â
                      self-employed + Income from domestic products accruing to public
                       sector
= Rs. 3,000 crores + Rs. 2,000 crores + Rs. 1,000 crores + Rs. 9,000 crores
= Rs. 15,000 crores
Â
* Income from domestic products accruing to public sector = Income from property and entrepreneurship accruing to government administrative departments + Saving of non-departmental enterprises
= Rs.5,000 crores + Rs. 4,000 crores = Rs. 9,000 crores
| Q.5 Calculate the NDP at FC by using the income method. | ||
| S. No. | Items | Amount
(in crores) |
| (i) | Compensation of employees | 3,165 |
| (ii) | Income from property | 2,375 |
| (iii) | Income from entrepreneurship | 1,567 |
| (iv) | Mixed income of self-employed | 4,363 |
| (v) | Savings of non-departmental enterprise | 5,770 |
| (vi) | Income from property and entrepreneurship to government administrative departments | 2,530 |
Solution:
Income from domestic products accruing to public sector = Income from property and entrepreneurship accruing to government administrative departments + Savings of non-departmental enterprises
= Rs. 2,530 crores + Rs.5,770 crores
= Rs.8,300 crores
NDP at FC = Compensation of employees + Income from property + Income from
                       entrepreneurship + Mixed income of self-employed +Income from
                       domestic products accruing to public sector
  = Rs. 3,165 crores + Rs. 2,375 crores + Rs.1,567 crores + Rs. 4,363
                        crores + Rs.8,300 crores        Â
  = Rs. 19,770 crores
| Q.6 Calculate the NDP at FC by using the income method. | ||
| S. No. | Items | Amount
(in crores) |
| (i) | Wages | 2,100 |
| (ii) | Rent | 5,300 |
| (iii) | Interest | 1,500 |
| (iv) | Profit | 1,100 |
| (v) | Mixed income of self-employed | 5,590 |
| (vi) | Savings of non-departmental enterprise | 2,410 |
| (vii) | Income from property and entrepreneurship to government administrative departments | 8,000 |
Solution:
NDP at FC = Compensation of employees + Operating surplus + Mixed income +
                           Income from domestic products accruing to public sector Â
  = Rs. 2,100 crores + Rs.7,900 crores + Rs. 5,590 + Rs.10,410 crores
 = Rs. 26,000 crores
Â
  Working Note:
  Compensation of employees = Wages in cash
          = Rs. 2,100 crores
  Operating surplus = Rent + Interest + Profit            Â
  = Rs. 5,300 crores + Rs. 1,500 + Rs. 1,100
= Rs. 7,900 crores
    Income from domestic products accruing to public sector = Income from
   property and entrepreneurship accruing to government administrative
   departments + Saving of non-departmental enterprises
  = Rs. 8,000 crores + Rs. 2,410
  = Rs. 10,410 crores
| Q.7 Calculate the NDP at FC by using the income method. | ||
| S. No. | Items | Amount
(in crores) |
| (i) | Wages and Salaries | 32,100 |
| (ii) | Rent | 52,300 |
| (iii) | Royalty | 12,500 |
| (iv) | Interest | 10,100 |
| (v) | Corporate tax | 50,590 |
| (vi) | Dividend | 20,410 |
| (vii) | Undistributed profit | 81,000 |
| (viii) | Mixed income of self-employed | 12,110 |
| (ix) | Savings of non-departmental enterprise | 5,190 |
| (x) | Income from property and entrepreneurship to government administrative departments | 15,500 |
Solution:
NDP at FC = Compensation of employees + Operating surplus + Mixed income +
                           Income from domestic products accruing to public sector
  = Rs. 32,100 crores + Rs. 2,26,900 crores + Rs. 12,110 crores +
      Rs. 20,690 crores
   = Rs. 2,91,800 crores
Â
   Working Note:
   Compensation of employees = Wages and salaries in cash
  = Rs. 32,100 crores
      Operating surplus = Rent + Royalty + Interest + ProfitÂ
      = Rs. 52,300 crores + Rs. 12,500 crores + Rs. 10,100 +
                                     Rs. 1,52,000
      = Rs. 2,26,900 crores
   Profit = Undistributed profit + Dividend + Corporate tax
    = Rs. 81,000 crores + Rs. 20,410 crores + Rs.50,590 crores
    = Rs.1,52,000 crores
    Income from domestic products accruing to public sector = Income from
   property and entrepreneurship accruing to government administrative
   departments + Savings of non-departmental enterprises
   = Rs. 15,500 crores + Rs. 5,190 crores
   = Rs. 20,690 crores
Â
| Q.8 Calculate the domestic income and national income by using the income method. | ||
| S. No. | Items | Amount
(in crores) |
| (i) | Compensation of employees | 3,000 |
| (ii) | Income from property | 2,000 |
| (iii) | Income from entrepreneurship | 1,500 |
| (iv) | Mixed income of self-employed | 4,500 |
| (v) | Savings of non-departmental enterprise | 5,000 |
| (vi) | Income from property and entrepreneurship to government administrative departments | 2,000 |
| (vii) | Depreciation | 1,000 |
| (viii) | Net indirect taxes | 500 |
| (ix) | Net factor income from abroad | 1,000 |
Solution:
NDP at FC = Compensation of employees + Income from property + Income from
                            entrepreneurship + Mixed income + Income from domestic products
                        accruing to public sector
   = Rs. 3,000 crores + Rs. 2,000 Crores + Rs. 1,500 crores + Rs. 4,500
                        crores + Rs. 7,000 crores
   = Rs. 18,000 crores
     Â
     National income = NDP at FC + Net factor income from abroad
    = Rs. 18,000 crores + Rs. 1,000 crores
    = Rs. 19,000 crores
Income from domestic products accruing to public sector = Income from
   property and entrepreneurship accruing to government administrative
   departments + Saving of non-departmental enterprises
                     = Rs. 2,000 crores + Rs. 5,000 crores
   = Rs. 7,000 crores
| Q.9 Calculate the NDP at FC and the NNP at FC by using the income method. | ||
| S. No | Items | Amount
(in crores) |
| (i) | Wages | 2,000 |
| (ii) | Salaries | 1,000 |
| (iii) | Employers’ contribution to social security schemes | 500 |
| (iv) | Rent | 1,000 |
| (v) | Interest | 1,500 |
| (vi) | Profit | 1,000 |
| (vii) | Mixed income of self-employed | 2,500 |
| (viii) | Savings of non-departmental enterprise | 4,000 |
| (ix) | Income from property and entrepreneurship to government administrative departments | 5,000 |
| (x) | Depreciation | 1,000 |
| (xi) | Indirect taxes | 1,500 |
| (xii) | Subsidies | 500 |
| (xiii) | Factor income from abroad | 2,000 |
| (xiv) | Factor Income to abroad | 500 |
Solution:
NDP at FC = Compensation of employees + Operating surplus + Mixed income +
                             Income from domestic products accruing to public sector
    = Rs. 3,500 crores + Rs. 3,500 crores + Rs. 2,500 crores + Rs. 9,000 crores
   = Rs. 18,500 crores
Â
NNP at FC = NDP at FC + Net factor income from abroad
  = Rs. 18,500 crores + Rs. 1,500 croresÂ
  = Rs. 20,000 croresÂ
Â
Working Note:Â
Compensation of employees = Wages + Salaries + Employers’ contribution to social
                                                               security schemes
    = Rs. 2,000 crores + Rs. 1,000 crores + Rs. 500 crores
    = Rs. 3,500 crores
Â
Operating surplus = Rent + Interest + Profit
     = Rs. 1,000 crores + Rs. 1,500 crores + Rs. 1,000 crores
     = Rs. 3,500
Â
Income from domestic products accruing to public sector = Income from
   property and entrepreneurship accruing to government administrative
   departments + Saving of non-departmental enterprises
    = Rs. 5,000 crores + Rs. 4,000 crores
     = Rs. 9,000 crores
Â
Net factor income from abroad = Factor income from abroad – Factor income to abroad
       = Rs. 2,000 crores – Rs. 500 crores
             = Rs. 1,500 crores
| Q.10 Calculate the NDP at FC and the NNP at FC by using the income method. | ||
| S. No. | Items | Amount
(in crores) |
| (i) | Wages and Salaries | 2,000 |
| (ii) | Rent | 1,000 |
| (iii) | Operation surplus | 3,000 |
| (iv) | Interest | 1,500 |
| (v) | Compensation of employees | 4,000 |
| (vi) | Mixed income of self-employed | 2,500 |
| (vii) | Savings of non-departmental enterprise | 4,000 |
| (viii) | Income from property and entrepreneurship to government administrative departments | 5,000 |
| (ix) | Depreciation | 1,000 |
| (x) | Indirect taxes | 1,500 |
| (xi) | Subsidies | 500 |
| (xii) | Factor income from abroad | 2,000 |
| (xiii) | Factor income to abroad | 500 |
Solution:
NDP at FC = Compensation of employees + Operating surplus + Mixed income +
                             Income from domestic products accruing to public sector
    = Rs. 4,000 crores + Rs. 3,000 crores + Rs. 2,500 crores + Rs. 9,000 crores
    = Rs. 18,500 crores
  Â
NNP at FC = NDP at FC + Net factor income from abroad
  = Rs. 18,500 crores + Rs. 1,500 croresÂ
  = Rs. 20,000 croresÂ
Â
Working Note:
Income from domestic products accruing to public sector = Income from
   property and entrepreneurship accruing to government administrative
   departments + Saving of non-departmental enterprises
   = Rs. 5,000 crores + Rs. 4,000 crores
   = Rs. 9,000 crores
Â
Net factor income from abroad = Factor income from abroad – Factor income to abroad
       = Rs. 2,000 crores – Rs. 500 crores
             = Rs. 1,500 crores
| Q.11 Calculate the NDP at FC and the NNP at FC by using the income method. | ||
| S. No. | Items | Amount
(in crores) |
| (i) | Wages and Salaries | 4,000 |
| (ii) | Rent and Royalty | 2,000 |
| (iii) | Compensation of employees | 5,000 |
| (iv) | Interest | 6,000 |
| (v) | Corporate tax | 1,000 |
| (vi) | Profit | 4,000 |
| (vii) | Undistributed profit | 1,000 |
| (viii) | Mixed income of self-employed | 2,000 |
| (ix) | Savings of non-departmental enterprise | 3,000 |
| (x) | Income from property and entrepreneurship to government administrative departments | 5,000 |
| (xi) | Net factor income to abroad | 1,000 |
| (xii) | Subsidies | 1,000 |
| (xiii) | Consumption of fixed capital | 500 |
| (xiv) | Employees’ contribution to social security schemes | 1,000 |
Solution:
NDP at FC = Compensation of employees + Operating surplus + Mixed income +
                             Income from domestic products accruing to public sector
    = Rs. 5,000 crores + Rs. 12,000 crores + Rs. 2,000 crores + Rs. 8,000 Â
   crores
     = Rs. 27,000 crores
Â
 NNP at FC = NDP at FC + Net factor income from abroad
       = Rs. 27,000 crores + (-1,000)
          = Rs. 26,000 crores
Â
    Working Note:
   Operating surplus = Rent and Royalty + Interest + Profit
     = Rs. 2,000 crores + Rs. 6,000 crores + Rs. 4,000 crores
     = Rs.1 2,000 crores
Â
   Income from domestic products accruing to public sector = Income from
        property and entrepreneurship accruing to government administrative
        departments + Savings of non-departmental enterprises
   = Rs. 5,000 crores + Rs. 3,000 crores
   = Rs. 8,000 crores
| Q.12 Calculate the NDP at FC and the NNP at FC by using the income method. | ||
| S. No. | Items | Amount
(in crores) |
| (i) | Wages and Salaries | 1,000 |
| (ii) | Rent | 2,000 |
| (iii) | Royalty | 2,500 |
| (iv) | Interest | 1,000 |
| (v) | Corporation tax | 2,100 |
| (vi) | Dividend | 900 |
| (vii) | Undistributed profit | 550 |
| (viii) | Mixed income of self-employed | 450 |
| (x) | Savings of non-departmental enterprise | 3,000 |
| (ix) | Income from property and entrepreneurship to government administrative departments | 1,000 |
| (x) | Net factor income from abroad | 1,000 |
| (xi) | Factor income to abroad | 500 |
| (xii) | Net indirect taxes | 500 |
| (xiii) | Consumption of fixed capital | 200 |
| (xiv) | Subsidies | 700 |
| (xv) | Employers’ contribution to social security schemes | 100 |
Solution:
NDP at FC = Compensation of employees + Operating surplus + Mixed income +
                             Income from domestic products accruing to public sector
    = Rs. 1,100 crores + Rs. 9,050 crores + Rs. 450 crores + Rs. 4,000 crores
    = Rs. 14,600 crores
Â
      NNP at FC = NDP at FC + Net factor income from abroad
     = Rs. 14,600 crores + Rs. 1,000 crores
     = Rs. 15,600 crores
Working Note:
Compensation of employees = Wages and Salaries + Employers’ contribution to
social security schemes
    = Rs. 1,000 crores + Rs. 100 crores
    = Rs. 1,100 crores Â
Â
Operating surplus = Rent + Royalty + Interest + Profit
     = Rs. 2,000 crores + Rs. 2,500 crores + Rs. 1,000 crores + Rs. 3,550
                                                   crores
                                               = Rs. 9,050
Â
Profit = Undistributed profit + Dividend + Corporate tax
        = Rs. 550 crores + Rs. 900 crores + Rs. 2,100Â
        = Rs. 3,550 crores
Â
 Income from domestic products accruing to public sector = Income from
        property and entrepreneurship accruing to government administrative
        departments + Saving of non-departmental enterprises
= Rs. 1,000 crores + Rs. 3,000 crores
= Rs. 4,000 crores
| Q.13 Calculate the domestic income and national income by using the income method. | ||
| S. No. | Items | Amount
(in crores) |
| (i) | Factor income to abroad | 11,000 |
| (ii) | Rent | 21,000 |
| (iii) | Royalty | 12,500 |
| (iv) | Subsidies | 10,100 |
| (v) | Tax by companies | 1,100 |
| (vi) | Income from property and entrepreneurship to government administrative departments | 9,000 |
| (vii) | Retained profits | 11,500 |
| (viii) | Mixed income of self-employed | 14,500 |
| (ix) | Factor income from abroad | 20,000 |
| (x) | Income from domestic products accruing to public sector | 19,000 |
| (xi) | Dividend | 11,000 |
| (xii) | Depreciation | 1,500 |
| (xiii) | Indirect taxes | 5,000 |
| (xiv) | Interest | 2,000 |
| (xv) | Wages and Salaries | 11,800 |
Solution:
NDP at FC = Compensation of employees + Operating surplus + Mixed income +
                             Income from domestic products accruing to public sector
    = Rs. 11,800 crores + Rs. 59,100 crores + Rs. 14,500 crores + Rs. 19,000
                         crores
    = Rs. 1,04,400 crores
Â
National income = NDP at FC + Net factor income from abroad
     = Rs. 1,04,400 crores + Rs. 9,000 crores
     = Rs. 1,13,400 croresÂ
Working Note:Â
Compensation of employees = Wages and Salaries = Rs. 11,800 crores
Â
Operating surplus = Rent + Royalty + Interest + Retained profits + Tax by companies +
                                 Dividends
    = Rs. 21,000 crores + Rs. 12,500 crores + Rs. 2,000 crores + Rs. 11,500
crores + Rs. 1,100 crores + Rs. 11,000
   = Rs. 59,100 crores
Â
Net factor income from abroad = Factor income from abroad – Factor income to abroad
       = Rs. 20,000 crores – Rs. 11,000 crores
       = Rs. 9,000 crores
| Important Topics in Business Studies: |
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