What is Income Method?

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) 

(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    

                        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 enterprises 

    = Rs. 23,000 crores + Rs. 12,000 crores

= Rs. 35,000 crores

 

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  

                       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

 

* 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                

  = 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  

  = Rs. 2,100 crores + Rs.7,900 crores + Rs. 5,590 + Rs.10,410 crores

 = Rs. 26,000 crores

 

   Working Note:

   Compensation of employees = Wages in cash

           = Rs. 2,100 crores

   Operating surplus = Rent + Interest + Profit                        

  = 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

 

    Working Note:

    Compensation of employees = Wages and salaries in cash

  = Rs. 32,100 crores

      Operating surplus = Rent + Royalty + Interest + Profit 

      = 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

 

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

      

      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

 

NNP at FC = NDP at FC + Net factor income from abroad

  = Rs. 18,500 crores + Rs. 1,500 crores 

  = Rs. 20,000 crores 

 

Working Note: 

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

 

Operating surplus = Rent + Interest + Profit

      = Rs. 1,000 crores + Rs. 1,500 crores  + Rs. 1,000 crores

      = Rs. 3,500

 

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

 

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

   

NNP at FC = NDP at FC + Net factor income from abroad

  = Rs. 18,500 crores + Rs. 1,500 crores 

  = Rs. 20,000 crores 

 

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

 

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  

    crores

     = Rs. 27,000 crores

 

 NNP at FC = NDP at FC + Net factor income from abroad

        = Rs. 27,000 crores + (-1,000)

           = Rs. 26,000 crores

 

     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

 

    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

 

      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  

 

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

 

Profit = Undistributed profit + Dividend + Corporate tax

         = Rs. 550 crores + Rs. 900 crores + Rs. 2,100 

         = Rs. 3,550 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. 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

 

National income = NDP at FC + Net factor income from abroad

     = Rs. 1,04,400 crores + Rs. 9,000 crores

     = Rs. 1,13,400 crores 

Working Note: 

Compensation of employees = Wages and Salaries = Rs. 11,800 crores

 

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

 

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

 

The concept of income method is explained in detail. Stay tuned for questions papers, sample papers, syllabus, and relevant notifications on our website.

Leave a Comment

Your Mobile number and Email id will not be published. Required fields are marked *

*

*