Examkin

Question

Difficulty: MediumPersonal Income and Disposable Income

In a given fiscal year, an economy records a National Income of ₦850 million. The accounting records reveal corporate profit taxes of ₦60 million, undistributed corporate profits of ₦40 million, social security contributions of ₦30 million, government transfer payments to households of ₦50 million, and personal direct taxes of ₦70 million. What is the Disposable Personal Income of this economy in millions of Naira?

Answer: 700 million Naira

Answer

700 million Naira
Starting from National Income of ₦850 million, we subtract corporate profit taxes (₦60 million), undistributed corporate profits (₦40 million), and social security contributions (₦30 million), while adding transfer payments (₦50 million) to arrive at Personal Income of ₦770 million. Subtracting personal direct taxes of ₦70 million yields a Disposable Personal Income of ₦700 million.

Step-by-Step Solution

1
Calculate Personal Income from National Income by deducting earnings not received by households (corporate taxes, retained earnings, social security payments) and adding income received but not earned in current production (transfer payments).
Personal Income = ₦850 million - ₦60 million - ₦40 million - ₦30 million + ₦50 million = ₦770 million
Personal Income measures the total earnings received by households from all sources prior to personal direct taxation.
2
Deduct personal direct taxes from Personal Income to find Disposable Personal Income.
Disposable Personal Income = ₦770 million - ₦70 million = ₦700 million
Disposable Personal Income represents the net amount remaining for spending and personal savings after paying direct taxes.

Key Concept

Derivation of Personal Income and Disposable Personal Income from National Income
Rate this question

Topics

Personal Income and Disposable Income

More questions from this topic