question_answer

Elaborate the concept of 'consumption of fixed capital' and 'capital loss'.

or

What precautions are taken while measuring national income by income method?

 

Answer:

Consumption of Fixed Capital It refers to the depreciation of fixed assets as they are being used in the production process. The various causes of consumption of fixed capital includes: (i) Normal wear and tear (ii) Accidental damages (iii) Expected obsolescence Capital Loss refers to the loss in value of fixed assets when these are not being used. The various causes of capital loss includes: (i)Natural calamities (ii)Fall in the market price of assets  Or             The following precautions are to be taken while measuring National Income by income method: (i) Income from illegal activities like smuggling, theft, gambling, etc should not be included, (ii) Commission paid on the sale and purchase of second hand goods are to be included. (iii) Transfer earnings like old age pensions, unemployment allowances, scholarships, pocket expenses, etc should not be included. (v)Imputed rent of owner occupied houses is to be treated along with rent as a component of factor incomes.