The income approach is an evaluation methodology used for real estate estimated that 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 allocation facet. To put it in other words, this methodology quantifies national income at the stage of allocation and appears as income paid or received by individuals of the nation. Hence, under this methodology, national income is attained by adding up of the earnings of all individuals of a nation. Individuals earn by contributing their own services and the services of their property such as land and capital to the national production.
Also Read:Â 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 the great advantage of manifesting the allocating 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 NDP at FC by using Income Method | ||
| S. No | Items | Amount
(` In Crores) |
| 1 | Income from Domestic Product Accruing to Private Sector | 4000 |
| 2 | Income from Domestic Product Accruing to Public Sector | 2000 |
Solution:
NDP at FC = Income from Domestic Product accruing to Private Sector + Income fromÂ
         Domestic Product accruing to Public SectorÂ
  = Rs. 4,000 crores + Rs. 2,000 croresÂ
    = Rs.6,000 CroresÂ
| Q.2- Calculate NDP at FC by using Income Method | ||
| S. No | Items | Amount
(` In Crores) |
| (i) | Compensation of Employees | 1000 |
| (ii) | Operating Surplus | 2000 |
| (iii) | Mixed-Income of Self employed | 5000 |
| (iv) | Income from Domestic Product Accruing to Public Sector | 10000 |
Solution:
  NDP at FC = Compensation of Employees + Operating Surplus + Mixed-Income ofÂ
     Self employed + Income from Domestic Product accruing to Public        Â
                           SectorÂ
  = Rs.1,000 crores + Rs.2,000 crores + Rs.5,000 crores + Rs.10,000Â
                           crores
  = Rs. 18,000 crores
| Q.3- Calculate NDP at FC by using Income Method | ||
| S. No | Items | Amount
(` In Crores) |
| 1 | Income from Domestic Product Accruing to Private Sector | 14000 |
| 2 | Savings of Non-Departmental Enterprise | 12000 |
| 3 | Income from property and Entrepreneurship to government administrative departments | 23000 |
Solution:
Income from Domestic Product accruing to Public Sector = Income fromÂ
     Property and Entrepreneurship accruing to Government Administrative DepartmentsÂ
     + Saving of Non-departmental Enterprises Â
   = Rs.23000 crores + Rs.12,000 crores
= Rs.35,000 crores
NDP at FC = Income from Domestic Product accruing to Private Sector +Â
    Income from Domestic Product accruing to Public SectorÂ
  = Rs. 14,000 crores + Rs.35,000 crores
= Rs.49,000 crores
| Q.4- Calculate NDP at FC by using Income Method | ||
| S. No | Items | Amount
(` In Crores) |
| 1 | Compensation of Employees | 3000 |
| 2 | Operating Surplus | 2000 |
| 3 | Mixed-Income of Self employed | 1000 |
| 4 | Savings of Non-Departmental Enterprise | 4000 |
| 5 | Income from property and Entrepreneurship to government administrative departments | 5000 |
Solution:
NDP at FC = Compensation of Employees + Operating Surplus + Mixed-Income of  Â
                          Self employed + income from Domestic Product accruing to PublicÂ
                           Sector
= Rs.3,000 crores + Rs. 2,000 crores + Rs.1,000 crores + Rs.9,000 crores
= Rs. 15,000 crores
* Income from Domestic Product accruing to Public Sector = Income from Property and Entrepreneurship accruing to Government Administrative Departments + Saving of Non-departmental EnterprisesÂ
= Rs.5,000 crores + Rs.4,000 crores = Rs.9,000 crores
| Q.5- Calculate NDP at FC by using Income Method | ||
| S. No | Items | Amount
(` In Crores) |
| (i) | Compensation of Employees | 3165 |
| (ii) | Income from Property | 2375 |
| (iii) | Income from Entrepreneurship | 1567 |
| (iv) | Mixed-Income of Self employed | 4363 |
| (v) | Savings of Non-Departmental Enterprise | 5770 |
| (vi) | Income from property and Entrepreneurship to government administrative departments | 2530 |
Solution:
Income from Domestic Product accruing to Public Sector = Income from Property and Entrepreneurship accruing to Government Administrative Departments + Saving of Non-departmental EnterprisesÂ
= Rs. 2,530 crores + Rs.5,770 croreÂ
= Rs.8,300 croresÂ
NDP at FC = Compensation of Employees + Income from Property + Income fromÂ
                           Entrepreneurship + Mixed-Income of Self employed + income fromÂ
                           Domestic Product accruing to Public Sector
  = Rs.3,165 crores + Rs.2,375 crores + Rs.1,567 crores + Rs. 4,363Â
                            crores + Rs.8,300 crores                    Â
  = Rs. 19,770 crores
| Q.6- Calculate NDP at FC by using Income Method | ||
| S. No | Items | Amount
(` In Crores) |
| 1 | Wages | 2100 |
| 2 | Rent | 5300 |
| 3 | Interest | 1500 |
| 4 | Profit | 1100 |
| 5 | Mixed-Income of Self employed | 5590 |
| 6 | Savings of Non-Departmental Enterprise | 2410 |
| 7 | Income from property and Entrepreneurship to government administrative departments | 8000 |
Solution:
NDP at FC = Compensation of Employees + Operating surplus + Mixed income +
                               income from Domestic Product accruing to Public Sector      Â
 = Rs.2,100 crores + Rs.7,900 crores + Rs.5,590 + Rs.10,410 croresÂ
 = Rs.26,000 croresÂ
      Working Note:Â
      Compensation of employees = Wages in CashÂ
       = Rs. 2,100 croresÂ
      Operating surplus = Rent + Interest + Profit                            Â
 = Rs.5,300 crores + Rs.1,500 + Rs.1,100Â
= Rs.7,900 croresÂ
        Income from Domestic Product accruing to Public Sector = Income from   Â
       Property and Entrepreneurship accruing to Government AdministrativeÂ
       Departments + Saving of Non-departmental Enterprises
  = Rs.8,000 crores + Rs.2,410
  = Rs.10,410 crores
| Q.7- Calculate NDP at FC by using Income Method | ||
| S. No | Items | Amount
(` In Crores) |
| (a) | Wages and Salaries | 32100 |
| (b) | Rent | 52300 |
| (c) | Royalty | 12500 |
| (d) | Interest | 10100 |
| (e) | Corporate Tax | 50590 |
| (f) | Dividend | 20410 |
| (g) | Undistributed Profit | 81000 |
| (h) | Mixed-Income of Self employed | 12110 |
| (i) | Savings of Non-Departmental Enterprise | 5190 |
| (j) | Income from property and Entrepreneurship to government administrative departments | 15500 |
Solution:
NDP at FC = Compensation of Employees + Operating surplus + Mixed income +
                               income from Domestic Product accruing to Public Sector
 = Rs.32,100 crores + Rs.2,26,900 crores + Rs.12,110 crores +Â
      Rs.20,690 croresÂ
   = Rs.2,91,800 croresÂ
       Working Note:Â
       Compensation of employees = Wages and salaries in CashÂ
  = Rs.32,100 croresÂ
      Operating Surplus = Rent + Royalty + Interest + Profit Â
   = Rs.52,300 crores + Rs.12,500 crores + Rs.10,100 +Â
                                         Rs.1,52,000
      = Rs.2,26,900 croresÂ
       Profit = Undistributed Profit + Dividend + Corporate Tax
        = Rs.81,000 crores + Rs. 20,410 crores + Rs. 50,590 croresÂ
        = Rs.1,52,000
        Income from Domestic Product accruing to Public Sector = Income from   Â
       Property and Entrepreneurship accruing to Government AdministrativeÂ
       Departments + Saving of Non-departmental Enterprises
       = Rs.15,500 crores + Rs.5,190 croresÂ
       = Rs.20,690 croresÂ
| Q.8- Calculate Domestic Income and National Income by using Income Method | ||
| S. No | Items | Amount
(` In Crores) |
| (i) | Compensation of Employees | 3000 |
| (ii) | Income from Property | 2000 |
| (iii) | Income from Entrepreneurship | 1500 |
| (iv) | Mixed-Income of Self employed | 4500 |
| (v) | Savings of Non-Departmental Enterprise | 5000 |
| (vi) | Income from property and Entrepreneurship to government administrative departments | 2000 |
| (vii) | Depreciation | 1000 |
| (viii) | Net Indirect Taxes | 500 |
| (ix) | Net Factor Income from Abroad | 1000 |
Solution:
NDP at FC = Compensation of Employees + Income from Property + Income fromÂ
                                Entrepreneurship + Mixed-Income + Income from Domestic ProductÂ
                            accruing to Public Sector
      = Rs.3,000 crores + Rs.2,000 Crores + Rs.1,500 crores + Rs.4,500Â
                            crores + Rs.7,000 croresÂ
   = Rs.18,000 croresÂ
         Â
         National Income = NDP at FC + Net Factor Income from Abroad
    = Rs.18,000 crores + Rs.1,000 croresÂ
    = Rs.19,000 croresÂ
   Â
Income from Domestic Product accruing to Public Sector = Income from   Â
       Property and Entrepreneurship accruing to Government AdministrativeÂ
       Departments + Saving of Non-departmental Enterprises
                         = Rs.2,000 crores + Rs.5,000 croresÂ
   = Rs.7,000 croresÂ
| Q.9- Calculate NDP at FC and NNP at FC by using Income Method | ||
| S. No | Items | Amount
(` In Crores) |
| 1 | Wages | 2000 |
| 2 | Salaries | 1000 |
| 3 | Employers’ contribution to Social Security Schemes | 500 |
| 4 | Rent | 1000 |
| 5 | Interest | 1500 |
| 6 | Profit | 1000 |
| 7 | Mixed-Income of Self employed | 2500 |
| 8 | Savings of Non-Departmental Enterprise | 4000 |
| 9 | Income from property and Entrepreneurship to government administrative departments | 5000 |
| 10 | Depreciation | 1000 |
| 11 | Indirect Taxes | 1500 |
| 12 | Subsidies | 500 |
| 11 | Factor Income from Abroad | 2000 |
| 13 | Factor Income to Abroad | 500 |
Solution:
NDP at FC = Compensation of Employees + Operating surplus + Mixed income +
                                 Income from Domestic Product accruing to Public Sector
  = Rs. 3,500 crores + Rs.3,500 crores + Rs.2,500 crores + Rs.9,000 croresÂ
   = Rs.18,500 croresÂ
       NNP at FC = NDP at FC + Net Factor Income from Abroad
  = Rs.18,500 crores + Rs.1,500 crores Â
  = Rs.20,000 crores Â
Working Note:Â Â
Compensation of Employees = Wages + Salaries + Employers’ contribution to SocialÂ
                                                               Security SchemesÂ
        = Rs.2,000 crores + Rs.1,000 crores + Rs.500 croresÂ
        = Rs.3,500 croresÂ
Operating Surplus = Rent + Interest + Profit
         = Rs.1,000 crores + Rs.1,500 crores + Rs.1,000 croresÂ
         = Rs.3,500Â
Income from Domestic Product accruing to Public Sector = Income from   Â
       Property and Entrepreneurship accruing to Government AdministrativeÂ
       Departments + Saving of Non-departmental Enterprises
    = Rs.5,000 crores + Rs.4,000 croresÂ
         = Rs.9,000 crores
Â
Net Factor Income from Abroad = Factor Income from Abroad – Factor Income to Abroad
           = Rs.2,000 crores – Rs.500 croresÂ
           = Rs.1,500 crores
| Q.10- Calculate NDP at FC and NNP at FC by using Income Method | ||
| S. No | Items | Amount
(` In Crores) |
| (i) | Wages & salaries | 2000 |
| (ii) | Rent | 1000 |
| (iii) | Operation Surplus | 3000 |
| (iv) | Interest | 1500 |
| (v) | Compensation of employees | 4000 |
| (vi) | Mixed-Income of Self employed | 2500 |
| (vii) | Savings of Non-Departmental Enterprise | 4000 |
| (viii) | Income from property and Entrepreneurship to government administrative departments | 5000 |
| (ix) | Depreciation | 1000 |
| (x) | Indirect Taxes | 1500 |
| (xi) | Subsidies | 500 |
| (xii) | Factor Income from Abroad | 2000 |
| (xiii) | Factor Income to Abroad | 500 |
Solution:
NDP at FC =  Compensation of Employees + Operating surplus + Mixed income +
                                 income from Domestic Product accruing to Public Sector
  = Rs.4,000 crores + Rs.3,000 crores + Rs.2,500 crores + Rs.9,000 crores
    = Rs.18,500 croresÂ
      Â
NNP at FC = NDP at FC + Net Factor Income from Abroad
  = Rs.18,500 crores + Rs.1,500 crores Â
  = Rs.20,000 crores Â
Working note:Â
Income from Domestic Product accruing to Public Sector = Income from   Â
       Property and Entrepreneurship accruing to Government AdministrativeÂ
       Departments + Saving of Non-departmental Enterprises
   = Rs.5,000 crores + Rs.4,000 croresÂ
   = Rs.9,000 croresÂ
Net Factor Income from Abroad = Factor Income from Abroad – Factor Income to Abroad
           = Rs.2,000 crores – Rs.500 croresÂ
           = Rs.1,500 crores
| Q.11- Calculate NDP at FC and NNP at FC by using Income Method | ||
| S. No | Items | Amount
(` In Crores) |
| 1 | Wages and Salaries | 4000 |
| 2 | Rent & Royalty | 2000 |
| 3 | Compensation of Employees | 5000 |
| 4 | Interest | 6000 |
| 5 | Corporate Tax | 1000 |
| 6 | Profit | 4000 |
| 7 | Undistributed Profit | 1000 |
| 8 | Mixed-Income of Self employed | 2000 |
| 9 | Savings of Non-Departmental Enterprise | 3000 |
| 10 | Income from property and Entrepreneurship to government administrative departments | 5000 |
| 11 | Net Factor Income to Abroad | 1000 |
| 12 | Subsidies | 1000 |
| 13 | Consumption of Fixed Capital | 500 |
| 14 | Employees’ contribution to Social Security Schemes | 1000 |
Solution:
NDP at FC = Compensation of Employees + Operating surplus + Mixed income +
                                 income from Domestic Product accruing to Public Sector
    = Rs.5,000 crores + Rs.12,000 crores + Rs.2,000 crores + Rs.8,000  Â
       croresÂ
     = Rs.27,000 croresÂ
 NNP at FC = NDP at FC + Net Factor Income from Abroad
       = Rs.27,000 crores + (-1,000)Â
          = Rs.26,000 croresÂ
        Working note:Â
         Operating Surplus = Rent & Royalty + Interest + Profit
     = Rs.2,000 crores + Rs.6,000 crores + Rs.4,000 croresÂ
     = Rs.12,000 croresÂ
       Income from Domestic Product accruing to Public Sector = Income from   Â
            Property and Entrepreneurship accruing to Government AdministrativeÂ
            Departments + Saving of Non-departmental Enterprises
   = Rs.5,000 crores + Rs.3,000 croresÂ
   = Rs.8,000 croresÂ
| Q.12- Calculate NDP at FC and NNP at FC by using Income Method | ||
| S. No | Items | Amount
(` In Crores) |
| (a) | Wages and Salaries | 1000 |
| (b) | Rent | 2000 |
| (c) | Royalty | 2500 |
| (d) | Interest | 1000 |
| (e) | Corporation Tax | 2100 |
| (f) | Dividend | 900 |
| (g) | Undistributed Profit | 550 |
| (h) | Mixed-Income of Self-employed | 450 |
| (i) | Savings of Non-Departmental Enterprise | 3000 |
| (j) | Income from property and Entrepreneurship to government administrative departments | 1000 |
| (k) | Net Factor Income from Abroad | 1000 |
| (l) | Factor Income to Abroad | 500 |
| (m) | Net Indirect Taxes | 500 |
| (n) | Consumption of Fixed Capital | 200 |
| (o) | Subsidies | 700 |
| (p) | Employers’ contribution to Social Security Schemes | 100 |
Solution:
NDP at FC = Compensation of Employees + Operating surplus + Mixed income +
                                 income from Domestic Product accruing to Public Sector
  = Rs.1,100 crores + Rs.9,050 crores + Rs.450 crores + Rs.4,000 croresÂ
    = Rs.14,600 croresÂ
           NNP at FC = NDP at FC + Net Factor Income from Abroad
     = Rs.14,600 crores + Rs.1,000 croresÂ
     = Rs.15,600 croresÂ
Working Note:Â
Compensation of Employees = Wages and Salaries + Employers’ contribution toÂ
Social Security Schemes
    = Rs.1,000 crores + Rs.100 croresÂ
    = Rs.1,100 crores  Â
Operating Surplus = Rent + Royalty + Interest + ProfitÂ
         = Rs. 2,000 crores + Rs.2,500 crores + Rs.1,000 crores + Rs.3,550Â
                                                   croresÂ
                                               = Rs.9,050
Profit = Undistributed Profit + Dividend + Corporate Tax
            = Rs.550 crores + Rs.900 crores + Rs.2,100 Â
            = Rs.3,550 croresÂ
 Income from Domestic Product accruing to Public Sector = Income from   Â
            Property and Entrepreneurship accruing to Government AdministrativeÂ
            Departments + Saving of Non-departmental Enterprises
= Rs.1,000 crores + Rs.3,000 croresÂ
= Rs.4,000 croresÂ
| Q.13- Calculate Domestic Income and National Income by using Income Method | ||
| S. No | Items | Amount
(` In Crores) |
| 1 | Factor Income to Abroad | 11000 |
| 2 | Rent | 21000 |
| 3 | Royalty | 12500 |
| 4 | Subsidies | 10100 |
| 5 | Tax by Companies | 1100 |
| 6 | Income from property and Entrepreneurship to government administrative departments | 9000 |
| 7 | Retained Profits | 11500 |
| 8 | Mixed-Income of Self employed | 14500 |
| 9 | Factor Income from Abroad | 20000 |
| 10 | Income from Domestic Product Accruing to Public Sector | 19000 |
| 11 | Dividend | 11000 |
| 12 | Depreciation | 1500 |
| 13 | Indirect Taxes | 5000 |
| 14 | Interest | 2000 |
| 15 | Wages and Salaries | 11800 |
Solution:
NDP at FC = Compensation of Employees + Operating surplus + Mixed income +
                                 income from Domestic Product accruing to Public Sector
    = Rs.11,800 crores + 59,100 crores + Rs.14,500 crores + Rs.19,000Â
                             crores
    = Rs.1,04,400 croresÂ
National Income = NDP at FC + Net Factor Income from Abroad
     = Rs.1,04,400 crores + Rs.9,000 crores
     = Rs.1,13,400 crores Â
Working note:Â Â
Compensation of Employees = Wages and Salaries = Rs.11,800 croresÂ
Operating Surplus = Rent + Royalty + Interest + Retained Profits + Tax by Companies +Â
                                     DividendsÂ
        = Rs.21,000 crores + Rs.12,500 crores + Rs. 2,000 crores + Rs,11,500Â
crores + Rs.1,100 crores + Rs.11,000
       = Rs.59,100 croresÂ
Net Factor Income from Abroad = Factor Income from Abroad – Factor Income to Abroad
           = Rs.20,000 crores – Rs.11,000 croresÂ
           = Rs.9,000 croresÂ
| Important Topics in Business Studies: |
The above mentioned is the concept that is explained in detail about the Income Method. To know more, stay tuned to BYJU’S.
