Suppose the GDP at market price of a country in a particular year was Rs 1,100 crores. Net Factor Income from

Exercises · Q7

Q. Suppose the GDP at market price of a country in a particular year was Rs 1,100 crores. Net Factor Income from Abroad was Rs 100 crores. The value of Indirect taxes - Subsidies was Rs 150 crores and National Income was Rs 850 crores. Calculate the aggregate value of depreciation.

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Concept understanding — Depreciation Calculation

Depreciation Calculation – A First Look

You own a smartphone you bought for ₹30,000. After a year, if you tried to sell it, you’d get maybe ₹20,000. That ₹10,000 drop isn’t a loss of cash from your pocket — it’s the wear and tear of the phone’s value. In economics, when a factory buys a machine for ₹10 lakh, that machine doesn’t stay worth ₹10 lakh forever. It rusts, breaks down, becomes outdated. The gradual loss in value is depreciation.

The Precise Meaning

In your NCERT Class 12 Macroeconomics textbook (Chapter 2, National Income Accounting), depreciation is defined as:

Depreciation is the fall in the value of a fixed asset due to normal wear and tear, passage of time, or expected obsolescence.

It is not a cash expense — no money leaves the firm when depreciation happens. But it is a cost that must be accounted for, because using a machine today reduces its future usefulness. Without depreciation, a firm would overstate its profit and a country would overstate its national income.

Why It Matters

For a firm: Depreciation is subtracted from revenue to find true profit. If you ignore it, you think you earned more than you really did.
For the economy: Gross Domestic Product (GDP) counts all final goods produced. But some of that production is just replacing worn-out machines. Net Domestic Product (NDP) = GDP – Depreciation. NDP tells us how much new value was actually added.

The Formula (NCERT Standard)

The NCERT textbook gives one standard method for calculating depreciation — the Straight Line Method. It is simple and exam-relevant.

\text{Depreciation} = \frac{\text{Cost of Asset} - \text{Scrap Value}}{\text{Estimated Life of Asset}}

Where:

Cost of Asset = purchase price + installation/transport costs (the total initial investment)
Scrap Value = the estimated resale value at the end of its life (could be zero)
Estimated Life = number of years the asset is expected to be used

Example: A machine costs ₹1,00,000, has a scrap value of ₹10,000, and a life of 10 years.

\text{Depreciation per year} = \frac{1,00,000 - 10,000}{10} = \frac{90,000}{10} = ₹9,000

Each year, the firm records ₹9,000 as depreciation. After 10 years, the machine’s book value becomes ₹10,000 (the scrap value).

A Word on Other Methods …

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Trace the aggregates from GDP at market price down to National Income. Since National Income (NNP at factor cost) is Rs 850 crores, working backwards gives depreciation = Rs 200 crores.

National income accounting links its aggregates through a fixed chain of adjustments, so the one unknown can always be recovered from the others. Here depreciation is the missing link between GDP at market price and National Income.

Two adjustments separate GDP at market price from National Income (= NNP at factor cost): a shift from domestic to national, and from gross, market-price to net, factor-cost.

\text{NNP}_{FC} \equiv \text{GDP}_{MP} + \text{NFIA} - \text{Depreciation} - \text{Net Indirect Taxes}

Add Net Factor Income from Abroad to go from domestic to national output: $\text{GNP}_{MP} = \text{GDP}_{MP} + \text{NFIA} = 1100 + 100 = 1200$ crores.
Subtract Net Indirect Taxes (indirect taxes $-$ subsidies $= 150$ ) to move from market prices to factor cost, and subtract Depreciation to move from gross to net, leaving National Income. …

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Same / Similar Concept — real previous-year questions on the same or a closely similar concept, not this exact question.

TBSE Tripura Higher Secondary (+2 Stage) Examination (Commerce) 2026Set ANNUAL5 marks
$Q. OR (Question 39 alternative) What is depreciation? From the following data, calculate the Gross Domestic Product at Market Price using the expenditure method:$
(i) Private Final Consumption Expenditure — Rs. 15,000 crore
(ii) Government Final Consumption Expenditure — Rs. 11,500 crore
(iii) Gross Domestic Fixed Capital Formation — Rs. 1,000 crore
(iv) Change in Stock — Rs. 200 crore
(v) Exports — Rs. 500 crore
(vi) Imports — Rs. 700 crore
(vii) Depreciation — Rs. 650 crore
(viii) Net Indirect Tax — Rs. 500 crore
(ix) Mixed Income — Rs. 100 crore
›Reveal solutionSolution

Depreciation is the normal wear-and-tear loss in value of fixed assets; using the Expenditure Method, GDP at Market Price here works out to Rs. 27,500 crore.

Depreciation (Consumption of Fixed Capital) is the fall in the value of a fixed asset (plant, machinery, building) over time due to normal wear and tear, routine usage and foreseeable obsolescence. It is treated as a cost of production that must be set aside/charged every year so the asset can eventually be replaced, which is why Gross figures (GDP) include it while Net figures (NDP) exclude it.

Expenditure Method calculates GDP at Market Price by adding up final expenditure on domestically produced goods and services:

GDP at MP = Private Final Consumption Expenditure (PFCE) + Government Final Consumption Expenditure (GFCE) + Gross Domestic Capital Formation (Gross Fixed Capital Formation + Change in Stock) + Net Exports (Exports − Imports)

PFCE = 15,000

GFCE = 11,500

Gross Domestic Fixed Capital Formation = 1,000

Change in Stock = 200

Exports = 500

Imports = 700

Gross Domestic Capital Formation = Fixed Capital Formation + Change in Stock = 1,000 + 200 = 1,200

Net Exports = Exports − Imports = 500 − 700 = (−)200

…

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Q.Suppose the GDP at market price of a country in a particular year was Rs 1,100 crores. Net Factor Income from Abroad was Rs 100 crores. The value of Indirect taxes – Subsidies was Rs 150 crores and National Income was Rs 850 crores. Calculate the aggregate value of depreciation.

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