Scrap value

Scrap value is the market price that can be obtained for the individual components of an asset. This value is derived when the owner of an asset is deciding whether to incur costs to maintain it or to stop maintaining it, tear it down, and sell the parts.

For example, the owner of a truck is told that the truck needs a new engine, which will cost $2,500. The owner can instead elect to sell the truck to a junkyard, which is willing to pay $600 for the truck and then sell off the parts. Thus, the owner has the choice of spending more money to keep the truck operational, or to sell the vehicle at its scrap value.

The concept can also be applied to the residual materials that are left over after a production process. For example, there is scrap metal left over after pieces are cut from a sheet of steel. This scrap metal can be sold to a dealer for its scrap value. The scrap value obtained offsets the cost of goods sold of the business.

Related Courses

Accounting for Inventory 
How to Audit Inventory