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Definitions of National Income: The definitions of national income can be grouped into two classes: One, the traditional definitions advanced by Marshall, Pigou and Fisher; and two, modern definitions. This is the true net annual income or revenue of the country or national dividend. And to this, must be added income from abroad.
Though the definition advanced by Marshall is simple and comprehensive, yet it suffers from a number of limitations. First, in the present day world, so varied and numerous are the goods and services produced that it is very difficult to have a correct Summary of income concept of them.
Consequently, the national income cannot be calculated correctly. Second, there always exists the fear of the mistake of double counting, and hence the national income cannot be correctly estimated.
Double counting means that a particular commodity or service like raw material or labour, etc. For example, a peasant sells wheat worth Rs. If each time, this wheat or its flour is taken into consideration, it will work out to Rs. Third, it is again not possible to have a correct estimation of national income because many of the commodities produced are not marketed and the producer either keeps the produce for self-consumption or exchanges it for other commodities.
It generally happens in an agriculture- oriented country like India. Thus the volume of national income is underestimated.
Pigou has in his definition of national income included that income which can be measured in terms of money. It has proved to be more practical also. While calculating the national income now-a- days, estimates are prepared in accordance with the two criteria laid down in this definition.
First, avoiding double counting, the goods and services which can be measured in money are included in national income. Second, income received on account of investment in foreign countries is included in national income. The Pigouvian definition is precise, simple and practical but it is not free from criticism.
First, in the light of the definition put forth by Pigou, we have to unnecessarily differentiate between commodities which can and which cannot be exchanged for money. But, in actuality, there is no difference in the fundamental forms of such commodities, no matter they can be exchanged for money.
Second, according to this definition when only such commodities as can be exchanged for money are included in estimation of national income, the national income cannot be correctly measured.
Similarly, Pigou is of the view that if a man marries his lady secretary, the national income diminishes as he has no longer to pay for her services. Thus the Pigovian definition gives rise to a number of paradoxes.
Third, the Pigovian definition is applicable only to the developed countries where goods and services are exchanged for money in the market. According to this definition, in the backward and underdeveloped countries of the world, where a major portion of the produce is simply bartered, correct estimate of national income will not be possible, because it will always work out less than the real level of income.
Thus the definition advanced by Pigou has a limited scope. Only the services rendered to me during this year by these things are income.
But from the practical point of view, this definition is less useful, because there are certain difficulties in measuring the goods and services in terms of money. First, it is more difficult to estimate the money value of net consumption than that of net production.
In one country there are several individuals who consume a particular good and that too at different places and, therefore, it is very difficult to estimate their total consumption in terms of money.
Second, certain consumption goods are durable and last for many years. If we consider the example of piano or overcoat, as given by Fisher, only the services rendered for use during one year by them will be included in income.
If an overcoat costs Rs. Besides, it cannot be said with certainty that the overcoat will last only for ten years. It may last longer or for a shorter period.A REVIEW OF INCOME CONCEPTS USED IN ECONOMIC ANALYSIS May- Principal Author R.
William Thomas "Review of Income Concepts Used in Economic Analysis"' reviews the theoretical Revisions Suggested for the National Income and Product Accounts Summary Selected Bibliography to .
NOTES Self-Instructional Material National Income: UNIT 10 NATIONAL INCOME: Concept and Measurement CONCEPT AND MEASUREMENT Structure Introduction. CRS Legislative Histories 2. Social Security: Summary of Major Changes in the Cash Benefits Program.
May 18, Geoffrey Kollmann Specialist in Social Legislation. Statement No. (Superseded) The FASB Accounting Standards Codification ® and the Hierarchy of Generally Accepted Accounting Principles—a replacement of FASB Statement No.
(Issue Date 06/09) Statement No. (Superseded) Amendments to FASB Interpretation No. 46(R) (Issue Date 06/09) Statement No. (Superseded) Accounting for Transfers of Financial Assets—an amendment of FASB. ADVERTISEMENTS: National Income: Definition, Concepts and Methods of Measuring National Income! Introduction: National income is an uncertain term which is used interchangeably with national dividend, national output and national expenditure.
The standard requires a complete set of financial statements to comprise a statement of financial position, a statement of profit or loss and other comprehensive income, a statement of changes in equity and a statement of cash flows.