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 : S. No. | Particulars | Amount (in Rs. lakh) (i) | Subsidies | 300 (ii) | Operating surplus | 600 (iii) | Opening stock | 120 (iv) | Closing stock | 520 (v) | Intermediate consumption | 2,900 (vi) | Consumption of fixed capital | 600 (vii) | Profits | 700 (viii) | Net Value Added at Factor Cost (NVA_FC) | 2,200

Question

Accepted Answer

NVA_FC = Value of Output - Intermediate Consumption - Depreciation
Given: NVA_FC = 2,200, IC = 2,900, Depreciation = 600
Value of Output = 2,200 + 2,900 + 600 = 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.