Capital invested in a firm is ₹ 5,00,000. Average profits of the firm are ₹ 64,000 (after an abnormal loss of ₹ 4,000). Value of goodwill at four times the super profits is ₹ 72,000. What is the normal rate of return?

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10% Explanation: Given: Capital invested = ₹ 5,00,000 Average profits (after abnormal loss) = ₹ 64,000 Abnormal loss = ₹ 4,000 Goodwill (4 years’ purchase of super profits) = ₹ 72,000 Adjusted Average Profit = 64,000 + 4,000 = ₹ 68,000 Goodwill = 4 $\times$ Super Profits 72,000 = 4 $\times$ Super Profits Super Profits = (72,000)/4 = ₹ 18,000 Super Profits = Adjusted Average Profits − Normal Profits 18,000 = 68,000 − Normal Profits Normal Profits = 50,000 Normal Profits = Capital Employed xx"NRR"/100 50,000 = 5,00,000 xx "NRR"/100 NRR = (50,000xx100)/(5,00,000) NRR = 10%

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