What is Income Method?

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: 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 from 

         Domestic Product accruing to Public Sector 

    = Rs. 4,000 crores + Rs. 2,000 crores 

    = Rs.6,000 Crores 

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 of 

     Self employed + Income from Domestic Product 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 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 from 

     Property and Entrepreneurship accruing to Government Administrative Departments 

     + Saving of Non-departmental Enterprises  

    = Rs.23000 crores + Rs.12,000 crores

= Rs.35,000 crores

 

NDP at FC = Income from Domestic Product accruing to Private Sector + 

    Income from Domestic Product accruing to Public Sector 

   = 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   

                          Self employed + income from Domestic Product 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 Product 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 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 Enterprises 

= Rs. 2,530 crores + Rs.5,770 crore 

= Rs.8,300 crores 

NDP at FC = Compensation of Employees + Income from Property + Income from 

                           Entrepreneurship + Mixed-Income of Self employed + income from 

                           Domestic Product 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 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       

  = 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 Product 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 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 + 

      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

        Income from Domestic Product accruing to Public Sector = Income from    

       Property and Entrepreneurship accruing to Government Administrative 

       Departments + Saving of Non-departmental Enterprises

       = Rs.15,500 crores + Rs.5,190 crores 

       = Rs.20,690 crores 

 

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 from 

                                Entrepreneurship + Mixed-Income + Income from Domestic Product 

                            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 Product 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 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 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 Product 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 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 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 Product 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 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   

       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 & Royalty + Interest + Profit

     = Rs.2,000 crores + Rs.6,000 crores + Rs.4,000 crores 

     = Rs.12,000 crores 

 

       Income from Domestic Product accruing to Public Sector = Income from    

            Property and Entrepreneurship accruing to Government Administrative 

            Departments + Saving of Non-departmental Enterprises

   = Rs.5,000 crores + Rs.3,000 crores 

   = Rs.8,000 crores 

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 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 Product 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 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.19,000 

                             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 above mentioned is the concept that is explained in detail about the Income Method. To know more, stay tuned to BYJUS.

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