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 a dividend to shareholders. Which of the following is correct?

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

Assertion (A) is correct. When a company earns profit prior to its incorporation, it is called capital profit. This is because the company does not yet exist as a legal entity, and so the profit cannot be attributed to it.

Reason (R) is incorrect. Capital profit can be used for distribution as a dividend to shareholders. This is because the profit is not considered to be part of the company’s assets, and so it is not subject to the same restrictions as other types of profit.

Here is a more detailed explanation of each option:

• Option A: (A) is correct, but (R) is incorrect. This is the correct answer, as explained above.
• Option B: Both (A) and (R) are correct. This is incorrect, as (R) is incorrect.
• Option C: (A) is incorrect, but (R) is correct. This is incorrect, as (A) is correct.
• Option D: Both (A) and (R) are incorrect. This is incorrect, as (A) is correct.