Assertion (A) When a company earns profit prior to its incorporation, it is called capital profit. Reason (R) Capital profit cannot be used for distribution as dividend to the shareholders.

The correct answer is: (A) is true, but (R) is false.

A capital profit is a profit that is made on the sale of capital assets, such as land or buildings. It is not a profit that is made from the normal trading activities of the company. Capital profits cannot be used for distribution as dividend to the shareholders.

The reason (R) is false because capital profits can be used for other purposes, such as to increase the company’s reserves or to invest in new projects.

Here is a more detailed explanation of each option:

• Option A: (A) is true, but (R) is false. This is the correct answer because capital profits cannot be used for distribution as dividend to the shareholders.
• Option B: Both (A) and (R) are false. This is not the correct answer because capital profits are real profits that are made by the company.
• Option C: (A) is false, but (R) is true. This is not the correct answer because capital profits are real profits that are made by the company, and they cannot be used for distribution as dividend to the shareholders.
• Option D: Both (A) and (R) are true. This is not the correct answer because capital profits cannot be used for distribution as dividend to the shareholders.