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.

Both (A) and (R) are true

Explanation:

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).