Step 1: Evaluate the Assertion.
Finely divided charcoal has a very large surface area due to its porous structure. Adsorption is a surface phenomenon, so larger surface area means higher adsorbing capacity. Assertion (A) is correct.
Step 2: Evaluate the Reason.
The Reason states that finely divided material has small surface area -- this is the opposite of the truth. Finely divided material has a large surface area. So the Reason (R) is incorrect. \[ oxed{(A) ext{ is correct but } (R) ext{ is incorrect}} \]