# Normal rate of return definition

Normal rate of return. means the average rate of return that a firm would receive in an industry when conditions of perfect competition prevail.

## Examples of Normal rate of return in a sentence

Deduct average capital employed from the normal value of the business to arrive at goodwill.Let us suppose capital employed by a partnership firm is ₹ 100000, its average profit is ₹20,000, Normal rate of return is 15%.Normal Value of business = 20,000 x 100 / 15= ₹ 1,33,333Value of goodwill = ₹ 1,33,333 – ₹ 1,00,000 = ₹ 33,333 Illustration 4 Lee and Lawson are in equal partnership.

Normal rate of return is 22% in case of similar firms working under similar conditions.

In these three years, the managing director was paid a salary of Rs.10,00 p.m. but now he would be paid a salary of Rs.12,00 p.m. Normal rate of return expected in the industry in which Kausik Ltd., is engaged is 18%.

Normal rate of return is expected at 15%.Based on the information furnished, Mr. Kant, a director contends that the company does not have any goodwill.

Find out the value of goodwill by capitalization method from the following : Normal rate of return 10%Adjusted average profits of the proceeding 5 years Rs.30000.