Final answer:
Amortizing intangible assets decreases both the intangible asset's value and equity due to the increase in expenses. Banks may show assets that aren't physically present because of the use of loans and investments which are still considered assets. In the secondary market, loans may be valued more or less based on the borrower's payment history, the level of profits declared by the borrowing firm, and shifts in market interest rates.
Step-by-step explanation:
Amortizing intangible assets affects the accounting equation by causing a decrease in the intangible asset's book value on the balance sheet and an increase in the expense on the income statement. As intangible assets such as patents or trademarks are amortized, the amortization expense is recognized, which reduces net income on the income statement. On the balance sheet, the asset's carrying value is decreased by the amortization amount, reducing total assets. This process impacts both the assets and equity side of the accounting equation since retained earnings, a component of equity, is reduced by the net income decrease caused by the amortization expense.
The money listed under assets on a bank balance sheet may not actually be in the bank because banks engage in fractional-reserve banking. This means they are required to hold only a fraction of their depositors' money in reserve, with the rest being used for loans and investments. Thus, while these loans and investments are considered assets, the actual cash is not physically present in the bank.
In the secondary market, a financial services company or bank buying loans will consider several factors when deciding to pay more or less for a given loan:
If the borrower has been late on a number of loan payments, the loan would be considered riskier, and the buyer would likely pay less for it due to the increased chance of default.
Higher interest rates in the economy since the loan was made can reduce the value of the loan, as new loans would yield higher returns. Thus, a buyer might pay less for the existing loan.
If the borrower is a firm that has declared a high level of profits, the loan is considered safer, and therefore, the buyer might be willing to pay more.
Lower interest rates in the economy could increase the value of an existing, higher-rate loan. A buyer would likely pay more for the loan since it yields returns above the current market rates.