In this class, we will enter the detail of the equity and liability section, trying to understand which are the main components and then the elements we have inside each of these component. As we have already discussed, equity and liability section is composed by two main areas. So if we have equity and liabilities, we can identify the first area which is represented by the so-called third part liabilities and then we have the so-called shareholders equity. In both of the cases, what we have inside the equity and liabilities are the rights of people that own the resources of the company. If we have third part liabilities, this means that owners of the resources that are list in the asset section, are external or outside the company. The third part liabilities, we have discussed that can be of two different types. We can have non-current liabilities, but also current liabilities. We are talking about liabilities that are due by the company over one year or within the next 12 months. So all of the financial resources can be classified both as non-current and current depending on their time horizon. So we can have, for example, bank debt, and these are example of liabilities that can be both non-current and current. They are non-current in the moment in which we're talking about a long-term debt that is due by the company over one year. The same bank debt can be considered as current in the moment in which the company should return the money to the bank within the next 12 months. Another example is represented by bonds that are usually non-current liabilities. Then we have a particular example of non-current liabilities which is defined as provisions. Provisions are particular type of liabilities because they are uncertain, both in the time, but also in the amount. For example, think of pensions. Pensions are example of provisions because the company knows that [inaudible] going to pay the employees when they retire, but we do not know exactly the moment in which employees will retire, nor the specific amount of money that will be due to the employee. That's the reason why we are talking about provision, something which is uncertain, but for sure it will be due by the company. The same goes for taxation. Also for taxation, we have the same problem. We have something which is uncertain, both in the time, but also in the amount. Usually, provision is something that is include into the non-current liabilities. As I said, as for the bank debts and bonds, they can be both non-current and current. But pay attention, because we have a particular element which is always classified as current assets. This element is represented by the so-called accounts payables. That's the opposite of the trade receivables. Meaning that, if a company purchases raw material, but this raw material is not paid immediately but in the future, there is an account payable so the company is going to pay the supplier in the next few months. That's the reason why it is always classified as current assets, also because we do not have interest inside the account payables, why? We have the interest in the bank debts. That's the first category, third part liabilities. Then we have another category of the equity and liabilities which includes the rights of the owners of the company. This category is defined as shareholders equity. The shareholders equity is constitute by three elements. One of these element is represented by the capital. The capital represents the sum of the money that is provided by the shareholders inside the company. The capital is always issued at the nominal value which is represented by the number of shares multiplied by the unitary [inaudible] value of the share itself. Then this nominal value of the capital is reduced by the treasury shares but it is also reduced by the shareholders receivables which are the amount of money that the shareholders will provide inside the company, but that it has not provided inside the company yet. Then in other component of the shareholders equity is represented by reserves. These reserves are additional shareholders rights that emerge during the financial years. These reserves can be of different types. We can have legal reserves if they are required by the law. Then we can have statutory reserves that are required by the shareholders. But then we can also have the revaluation reserves which is used to classify and to recognize the revaluation of the assets. Then pay attention, because there is another reserve which is called as profits and loss brought forward. That even though it is classified as profit and loss, it is actually a reserve, which means that this kind of reserve represents the amount of profit that is retained by the company and not distributed to the shareholders, that of course, is related to the previous year. Finally, we have the third element that represents the shareholders' equity, that is represented by the profit or loss of the year. This is also the value that we can find inside the income statement. So this is the final result that is identified by the company inside the income statement by using an accrual logic. The rights of the shareholders are so important, because of course, they are the owner of the company that following the International Accounting Standard, there is a particular document that is specifically devoted to the shareholders' equity. So if we go back and if we think of the five documents that constitute the annual reports, we have a detail document that is the statement of changes in equity, that details specifically all of the evolution of the amount of the money of the shareholders over time.
