The books of a business showed that the firm's capital employed on December 31, 2015, is Rs. 5,00,000 and the profits for the last five years were: 2011-Rs. 40,000; 2012-Rs. 50,000; 2013-Rs. 55,000; 2014- Rs.70,000 and 2015-Rs. 85,000. Find out the normal profits of the business, given that the normal rate of return is 10%.
Answer & explanation
Correct answer: option 3
The correct answer is Option (3) → Rs. 50,000
Normal profit is what a firm with this capital would earn at the normal rate of return in the industry. It depends only on the capital employed and the rate; the profits of the past five years are needed for the average profit, not for the normal profit.
Normal profit = Capital employed × Normal rate of return ÷ 100
= Rs. 5,00,000 × 10/100
= Rs. 50,000
Rs. 60,000 is the average profit (Rs. 3,00,000 ÷ 5), the next step towards super profit.
NCERT (2026-27 edition):
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