Question

Giving reason explain how should the following be treated in estimation of national income:

(i) Expenditure by a firm on Payment of fees to a chartered accountant.

(ii) Payment of corporate tax by a firm.

(iii) Purchase of refrigerator by a firm for own use.

Answer 1

(i) Expenditure by a firm on payment of fees to chartered accountants - It not included in national income because it is an intermediate cost for the firm.

(ii) Payment of corporate tax by a firm- It is a transfer payment by the firm to the Government. It is paid out of income and therefore, not to be separately added in the estimation of national income.

(iii) Purchase o refrigerator by a firm for own use- Purchase of refrigerator by a firm is included in national income because it is an investment expenditure or capital formation. A refrigerator is used by the firm for several years.