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%.
- ARs. 70,000
- BRs. 35,000
- CRs. 50,000
- DRs. 60,000
Solution & Step-by-step Explanation
The formula to calculate Normal Profit is based on the capital invested in the business and the benchmark industry rate of return:
(Note: The list of past actual profits is extra data here since we are asked specifically for the normal profit value rather than the super profit).
(Note: The list of past actual profits is extra data here since we are asked specifically for the normal profit value rather than the super profit).