When a company issues different classes of shares, it must:

• A. disclose the rights and privileges of each class in its financial statements
• B. assign the same voting rights to all classes of shares
• C. limit the number of classes to two
• D. ensure that all classes receive equal dividends

Answer: (A)

Verified step by step guidance

1. Understand the context: The problem is about the disclosure and treatment of different classes of shares in a company's financial statements. Companies often issue multiple classes of shares, such as common shares and preferred shares, which may have different rights and privileges.
2. Review the key requirement: Financial accounting standards require companies to disclose the rights and privileges associated with each class of shares in their financial statements. This ensures transparency for investors and stakeholders.
3. Clarify the incorrect options: (1) Assigning the same voting rights to all classes of shares is not required, as different classes may have different voting rights. (2) Limiting the number of classes to two is not a requirement; companies can issue more than two classes of shares. (3) Ensuring that all classes receive equal dividends is not mandatory, as dividend rights can vary by class.
4. Focus on the correct answer: The correct requirement is to disclose the rights and privileges of each class of shares in the financial statements. This includes details such as voting rights, dividend entitlements, and liquidation preferences.
5. Conclude with the importance: Proper disclosure of share classes helps users of financial statements make informed decisions and ensures compliance with accounting standards like IFRS or GAAP.