Which formula is correct for calculating normal profit?

Correct answer: Capital employed × normal rate of return

The direct answer is option A: Capital employed × normal rate of return. Normal profit is the profit that a business is expected to earn under ordinary conditions on the capital used in the business. The calculation is Normal profit = Capital employed × Normal rate of return ÷ 100, when the rate is stated as a percentage. For example, capital employed of ₹5,00,000 at 10% gives ₹50,000 normal profit. This amount is compared with average actual profit to find super profit. Option A is correct because it directly uses the two required factors. Option B, average profit × years’ purchase, is a goodwill valuation formula, not a normal-profit formula. Option C, goodwill × new share, calculates the incoming partner’s share of goodwill, not normal profit. Option D, premium ÷ sacrificing ratio, does not measure the return expected from capital and is not a normal-profit formula. First calculate normal profit; then compare it with actual or average profit. The exam cue is: normal profit is the ordinary return on capital employed.