State any two precautions that are taken while estimating National income by value added method. Distinguish between depreciation and capital loss.

Question

Accepted Answer

Precautions for Value Added Method:
1. Intermediate goods should not be included as their value is already embedded in final goods, including them causes double counting.
2. Sale and purchase of second-hand goods should not be included as they were counted in the year of original production.

Difference between Depreciation and Capital Loss:
Depreciation is the fall in value of an asset due to expected wear and tear during its estimated useful life. It is a regular, anticipated reduction. Capital loss is the fall in value of an asset due to unforeseen events like earthquake, flood, or fire. It is sudden and unexpected. Depreciation is included in national income accounting; capital loss is not.