State and explain any two precautions that must be taken while estimating national income by expenditure method. Calculate the value of 'Sales' from the following data :

Question

Accepted Answer

From the table:
- Subsidies = 300
- Operating Surplus = 600
- Opening Stock = 120
- Closing Stock = 520
- IC = 2,900
- Depreciation = 600
- Profits = 700
- NVA_FC = 2,200

NVA_FC = Value of Output - IC - Depreciation
2,200 = Value of Output - 2,900 - 600
Value of Output = 5,700
Change in Stock = 520 - 120 = 400
Sales = 5,700 - 400 = Rs. 5,300 lakh

Precautions for Expenditure Method:
1. Do not include intermediate goods expenditure as it leads to double counting.
2. Do not include transfer payments as they are not connected with productive activity.