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.
A. (A) is true, but (R) is false
B. Both (A) and (R) are false
C. (A) is false, but (R) is true
D. Both (A) and (R) are true
Answer: Option D
Solution (By Examveda Team)
Both (A) and (R) are trueExplanation:
Before incorporation, any profit earned by a company is termed as capital profit. This profit cannot be distributed as dividends to shareholders because dividends can only be distributed from profits earned after incorporation, known as revenue profits.
Therefore, both Assertion (A) and Reason (R) are true, and Reason (R) correctly explains Assertion (A).
This Question Belongs to Commerce >> Accounting
Option D is correct
Both are correct