Question

Explain the components of ‘Profit’ as per Income Method of estimating National Income (NNP_FC).

Answer 1

In the Income Method, profit refers to the income earned by entrepreneurs and consists of the following three components:

1. Corporate Tax (Profit Tax): The portion of profit paid by companies to the government as tax on income.
2. Dividends: The share of profit distributed by companies to their shareholders.
3. Undistributed Profit (Retained Earnings): The part of profit that is neither taxed nor distributed as dividends and is retained by the company for future use.