Given information:
- Capital Employed = Rs. 5,00,000
- Normal Rate of Return = 10%
Normal Profit is the profit that a business should earn with the given capital employed at the normal rate of return prevailing in the industry.
Formula: Normal Profit = Capital Employed × Normal Rate of Return ÷ 100
Calculating Normal Profit:
Normal Profit = 5,00,000 × 10 ÷ 100
Normal Profit = Rs. 50,000
This means that with a capital of Rs. 5,00,000, the business should ordinarily earn Rs. 50,000 as profit if it generates returns at the normal industry rate of 10%. Any profit earned above this amount would be considered as super profit, which forms the basis for goodwill calculation.
Correct Answer: Option 1 - Rs. 50,000