Income Method

The income approach is an evaluation methodology used for real estate estimated that is computed by dividing the capitalization 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.

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
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
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 profit and Entrepreneurship to government administrative departments 23000
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 profit and Entrepreneurship to government administrative departments 5000
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 profit and Entrepreneurship to government administrative departments 2530

 

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 profit and Entrepreneurship to government administrative departments 8000

 

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 profit and Entrepreneurship to government administrative departments 15500

 

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 profit and Entrepreneurship to government administrative departments 2000
(vii) Depreciation 1000
(viii) Net Indirect Taxes 500
(ix) Net Factor Income from Abroad 1000

 

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 profit 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

 

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 profit 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

 

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 profit 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
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 profit 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
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 profit 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
Q.14- Calculate GDP at MP, NNP at MP, GDP at FC, NDP at FC, NNP at FC by using Income Method
S. No Items Amount

(` In Crores)

(a) Factor Income from Abroad 1000
(b) Rent 2000
(c) Royalty 2500
(d) Subsidies 1000
(e) Tax by Corporate Sector 100
(f) Savings of Non-Departmental Enterprise 900
(g) Undistributed Profit 1550
(h) Mixed-Income of Self-employed 1450
(i) Net Factor Income to Abroad 3000
(j) Income from Domestic Product Accruing to Public Sector 1900
(k) Dividend 1000
(l) Consumption of Fixed Capital 500
(m) Net Indirect Taxes 5100
(n) Interest 2100
(o) Wages and Salaries 1700
ANSWER KEY-INCOME METHOD
Q.1 NDP at FC=` 6000 crores
Q.2 NDP at FC=` 18000 crores
Q.3 NDP at FC=` 49000 crores
Q.4 NDP at FC=` 15000 crores
Q.5 NDP at FC=` 19770 crores
Q.6 NDP at FC=` 26000 crores
Q.7 NDP at FC=` 291800 crores
Q.8 NDP at FC=` 18,000 crores , NNP at FC=` 19,000 crores
Q.9 NDP at FC=` 18,500 crores , NNP at FC=` 20,000 crores
Q.10 NDP at FC=` 18,500 crores , NNP at FC=` 20,000 crores
Q.11 NDP at FC=` 27,000 crores , NNP at FC=` 26,0000 crores
Q.12 NDP at FC=` 14,600 crores , NNP at FC=` 15,600 crores
Q.13 NDP at FC=` 90,100 crores , NNP at FC=` 99,100 crores
Q.14 NDP at FC=` 12,850 crores , NNPFC = ` 98,50 crores , GDP at MP=` 18,450 crores , NNP at MP=` 14,950 crores , GDP at FC=` 13,350 crores

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