Final answer:
Writing off assets, like Property, Plant, and Equipment, involves decreasing the asset's value on the balance sheet, directly impacting the net worth or bank capital.
Step-by-step explanation:
Writing off assets, particularly significant items like Property, Plant, and Equipment (PPE), typically involves decreasing the asset's value on the balance sheet. This process is called depreciation for tangible assets and amortization for intangible assets, and it represents the allocation of the cost of assets over their useful lives.
A bank's balance sheet lists both assets and liabilities. An asset is something of value that the bank owns, like cash in its vaults or properties, while a liability is something the bank owes, such as deposits from customers or loans. When a bank writes off an asset, it is acknowledging that the asset has lost value, which decreases both the asset's worth on the balance sheet and the bank’s net worth or bank capital.
For example, if a bank determines that a piece of PPE is no longer useful or has lost value significantly, it will reduce the book value of that property, plant, or equipment item on the balance sheet, thereby impacting the net worth. This is in contrast to hoping that the value of tangible assets like collectibles might increase over time due to scarcity or demand.