National Income Accounting — Economics STD 12 Commerce — Question

If a single transaction is recorded twice or more than twice in the calculation of national income, then it is known as double counting.The problem of double counting is solved by value added method. Theoretically to avoid double counting there may be two alternative ways:

1. Final Product Approach: According to this, value of only final products, i.e. which go for final consumption or capital formation should be included. But in practical application of this approach double counting still creeps in as every producer treats the product he sells as final whereas the same might have been used as intermediate product by the buyer.
2. Value Added Approach: Value added method is most effective in avoiding double counting. According to this, instead of taking value of final goods, only value added at each stage of production by a producing unit is taken. Value added of a firm by subtracting intermediate consumption from value of output. Firms Value of Minus I.C. Value Output.

Firms	Value of output	Minus	I.C	Value Addede
A	1000	_____	0	1000
B	2000	_____	1000	1000
C	2700	_____	2000	700
D	3500	_____	2700	800