While using value added method for computing national income, the following precautions should be taken
(i) The value of intermediate goods should not be included.
(ii) Purchase and sale of second hand goods should be excluded.
(iii) Imputed value of self-consumed goods should be included.
(iv) Own account production should be included.
(v) Value of self-consumed services should not be included in the estimation of National Income.
(vi) Commission earned on account of sale and purchase of second hand goods is included.
(vii) Imputed rent on the owner occupied house is also taken into the account.
(viii) The value added in the government sector is equal to compensation of employees only.

Gross Domestic product (GDP) is the total value of all the final goods and services produced by all the enterprises (both resident and non-resident) within the domestic territory of a country in a particular year. GDP is considered as one of the best indicators of judging the economic performance of a country.
GDP may be a good indicator of economic growth, but not of economic welfare or economic development. One of the reason for this is that non-monetary transactions are ignored, while calculating GDP
The non-monetary exchanges which take place in the informal sectors are not included in the calculation of Gross Domestic Product (GDP) since money is not being used. For example, service of a housewife while teaching her children or while cooking food in kitchen. This results in under estimation of GDP. Hence, GDP calculated in the standard manner may not give us a clear indication of the productive activity and actual welfare of the country.

(i) Yes, Imputed rent of owner occupied houses will be included in NI.
(ii) No, because it is a financial transaction which does not help directly in production.
(iii) No, because it is not related with current flow of goods and services.
(iv) No, as it is a factor income paid abroad (it is earned by non-residents).
(v) Yes, It is included in NI since it is paid for rendering productive services.
(vi) Yes, dividends are a part of corporate profit and therefore, include in NI

Private income is defined as the sum of all factor and non-factor incomes received by the private sector of the economy in a given financial year whereas personal disposable income is defined as the sum total of all factor and non-factor incomes that is available to households for consumption expenditure and savings purpose. Personal disposable income is estimated from private income in two steps, which are stated as follows:
(A) Personal income is estimated from private income by subtracting corporate taxe and retained earning of private corporate sector from private income.
Personal Income = Private-Corporate tax-Retained earnings of private corporate sector.
(B) Personal disposable income is estimated by subtracting direct personal taxes paid by households and miscellaneous receipts of government from personal income.
Personal Disposable Income = Personal Income-Direct taxes paid by households-Miscellaneous receipts of government administrative departments.

Precautions to be taken up while estimating national income through the expenditure method are:
(a) Do not include intermediate expenditure, as it is already included in the final expenditure. In case intermediate expenditure is included, it will lead to double counting of expenditure, which may result in overestimation of national income.
(b) Do not include expenditure on second-hand goods, as it has already been included in the national income of the year, they were bought/sold for the first time. In case of any commission/brokerage paid to the intermediary, it should be treated as final expenditure and included in National Income.
(c) Imputed expenditure on own-account production should be included, e.g., production for Self-consumption, self-consumed services of owner occupied houses, free services from general government and private non-profit making organisations serving households.
(d) Exclude the Expenditure on transfer payments as they are unilateral transfers against which no good/service is provided in return. E.g. old age pension, donations, scholarships, taxes etc.
(e) Exclude the expenditure on shares/bonds etc, as buying and selling of these only leads to transfer of money from one person/institution to another. In case of any brokerage or commission paid to the agent, it should be included in final expenditure.

Four limitations of using GDP as a measure/index of welfare of a country are:
(i) Non-monetary exchanges like the services rendered by housewives and other family members etc. are left out on account of non-availability of data and problem of valuation. Certainly these items contributed to economic welfare. If we depend only on GDP, then we would be underestimating economic welfare.
(ii) GDP doesn't take into account externalities positive and negative, which affect the welfare. Positive externalities increase welfare and negative decrease welfare. But by ignoring them, we overstate/understate welfare.
(iii) All products do not contribute equally to economic welfare. For example, Police services, food items, houses ete. may contribute more to the welfare of the people than products like pan masala, cigarettes ete. Eco welfare would thus depend upon the type of goods and services produced and not simply how much is being produced.
(iv) Change in the income distribution may also affect welfare. As there is unequal distribution of income which may be increase or decreased. If it increases, it may lead to a decline in welfare or if it decreases, it may lead to a rise in welfare.

Main steps involved in the measurement of national income by the 'expenditure method' are:
Step I: Classify the production units into the industrial sectors - primary, secondary and tertiary sectors and further re-classify them into sub-sectors.
Step II: Estimate final expenditure on goods services produced by these industrial sectors, by way of Private Final Consumption Expenditure (PFCE), Government Final Consumption Expenditure (GFCE), Gross Domestic Capital Formation (GDCF) and Net Exports (X-M) and add them up to obtain GDP_MP . Symbolically GDP = PFCE + GFCE +GDCF + (X-M) _MP = PFCE + GFCE +GDCF + (X-M)
Step III: Deduct consumption of fixed capital and Net Indirect Taxes to arrive 'at NDPFC i.e. GDP_MP - Consumption of fixed capital- Net Indirect Taxes = NDP_FC or Domestic Income.
Step IV: Add Net Factor Income from abroad to NDPFC'to arrive at National Income/NNP_FC. NDP_FC + FIA = NNP_FC/National Income

(i) Profit is a flow variable, because it is measured over a period of time.
(ii) Capital is a stock variable because it can be measured at a particular point of time.
(iii) Savings are flow because they are measured over a period of time.
(iv) Balance in a bank account is a stock, because it is measured at a particular point of time.
(v) Capital formation is a flow because it is a measured over a period oftime.
(vi) GDP is a flow, because it is measured over a period of time.

(a) Rs 1535 crore (b) Rs 65 crore

(i) Capital gain on sale of a house is not included in the National Income estimation because it does not add to the flow of goods and services in the economy.

(ii) Prize won in a lottery is not included in National Income estimation because it is a part of transfer payments.

(iii) Interest on public debt is deemed as transfer payment. Hence, not included in the estimation of National Income.