What is 'Scrap Value'
Scrap value is the worth of a physical asset's individual components when the asset itself is deemed no longer usable. The individual components, known as "scrap," are worth something if they can be put to other uses. Sometimes scrap materials can be used as is; other times they must be processed before they can be reused. An item's scrap value is determined by the supply and demand for the materials it can be broken down into.
BREAKING DOWN 'Scrap Value'
For example, John has a very old car with a transmission that is shot. Because the cost to replace the transmission ($2,000) is significantly more than what the car would be worth even with a working transmission ($1,000), John decides to sell the car for its scrap value. He takes it to a junkyard where the car's usable parts and metal are valued at $500. Therefore, $500 is the car's scrap value.