This document provides information on calculating national income using the income method. It discusses three steps: 1) Compensation of employees including salaries, wages, bonuses, and employer contributions to social security. 2) Operating surplus including profit, rent, interest, and dividends. 3) Mixed income of self-employed individuals. It also provides precautions for calculating national income such as excluding transfer incomes, income from secondary goods, and illegal incomes. Factor payments made for factor services are included, while transfer payments without goods/services are excluded.

1. INCOME METHOD
FORMAT
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2. Income Method
Particulars Amount Amount
Step 1: Compensation of Employees (C.O.E)
a). Salaries,Wages, Bonus, Commission etc
b). Employers Contribution to social Security Schemes
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Step 2 : Operation Surplus (OS)
a). Profit
(i). CorporateTax
(ii). Dividend
(iii). Retained earnings/undistributed profits/ savings of
private corporate sector
b). Rent
c). Interest
d). Royalty
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Step 3 : Mixed Income of self Employed (MIS) ******
NDPfc ******
CA. PANKAJ KOTWANI 9630129222

3. Precautions for calculating National Income using Income Method –
(i).Transfer Incomes will not be included – Transfer earnings like unemployment allowance, charity, old age
pensions etc. are not included in the national income.
(ii). Income from sale & purchase of second hand goods will not be included – Any income by selling second
hand goods will not be included in the national income as it has already been counted. If it is included again, it
would mean double counting. It is just change in ownership. However any commission & brokerage for
transactions involving sale & purchase of second hand goods is included .
(iii). Income from the sale & purchase of shares & bonds is not included is not included.
(iv).Windfall gains will not be included
(v). Illegal incomes is not included
(vi). Corporate tax & income tax are included
CA. PANKAJ KOTWANI 9630129222

4. Meaning of Factor Payment &Transfer Payment
Factor Payments – It is made to a factor of production for rendering
factor services. For example, rent, wages, interest & profit. Factor
incomes earned by factors of production & factor payments made by an
entrepreneur to factors for their services are , in fact, the same. All factor
payments (or factor incomes) are included in the national income because
there is corresponding flow of goods & services in the economy.
Transfer Payments – It is payment recd. Without any corresponding
goods & services . This is also called unilateral payment. For example, old
age pension, scholarships etc., These payments are received without
making contribution to production. They are not included in the national
income of a country because there is no corresponding flow of goods &
services in the economy.
CA. PANKAJ KOTWANI 9630129222

5. PRACTICE QUESTIONS
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6. Q.1. Calculate GNPmp from the following data
Particulars Amount
Compensation of Employees 2000
Interest 500
Rent 700
Profits 800
Employers Contribution to social security
schemes
200
Dividends 300
Consumption of fixed capital 100
Net Indirect taxes 250
Net Exports 70
Net factor Income to Abroad 150
Mixed Income from Self Employed 1500
Ans: 5700
CA. PANKAJ KOTWANI 9630129222

7. Q.2. Calculate National Income (NNPfc) from the following data
Particulars Amount
Wages & Salaries 3800
Dividend 500
Rent 200
Interest 150
Profits 800
Employers contribution to social security schemes 200
Net Factor Income from abroad -30
Depreciation 40
NIT 300
Employees contribution to social security scheme 100
Ans : 5120
CA. PANKAJ KOTWANI 9630129222

8. Q.3. From the following data, calculate GDPfc
Particulars Amount
Compensation of Employees 800
Profits 200
Dividends 50
CorporateTax 100
Mixed Income 1000
Wages & Salaries 500
Rent 500
Interest 300
Dep 20
Factor Income from Abroad 20
Factor Income to Abroad 10
Net IndirectTax 50
Ans : 2820
CA. PANKAJ KOTWANI 9630129222

9. Q.4. From the following data, calculate Operating Surplus
Particulars Amount
Employers Contribution to Social Security
Scheme
100
Dividends 50
CorporateTax 100
Mixed Income 1000
Wages & Salaries 500
Rent 500
GDPmp 3500
Dep 100
Factor Income from Abroad 200
Factor Income to Abroad 100
Net IndirectTax 50
Ans : 1750
CA. PANKAJ KOTWANI 9630129222