question_answer

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:

(a) The services of chartered accountant hired by the firm should not be included in the estimation of national income. This is because it forms a part of the firm?s intermediate consumption.

(b) Payment of corporate tax is not included in the national income as it is a mere transfer payment from the firm to the government. It is a part of corporate profits which already form part of national income, therefore, it should not be separately included in national income (in addition to corporate profits).

(c) Purchase of refrigerator by a firm for own use will be included in the national income as it is regarded as final consumption expenditure.