### 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.

Scrap value is also referred to as the residual value, salvage value, or break-up value.

### Key Takeaways

• Scrap value is the worth of a physical asset's individual components when the asset itself is deemed no longer usable.
• Scrap value is also known as residual value, salvage value, or break-up value.
• The computed scrap value will vary depending on the depreciation method employed.

### The Formula For Calculating Scrap Value Is

﻿\begin{aligned} &\text{Scrap Value = Cost of Asset}-\left(\text{D} \times \text{Useful Life}\right)\\ &\textbf{where:}\\ &\text{D = Depreciation}\\ \end{aligned}﻿

### Understanding Scrap Value

In financial accounting, capital assets or long-term assets, such as machinery, vehicles, furniture, etc., have a useful life. After the asset has gone through its useful life, it may be disposed of. However, given that a broken down or obsolete asset may still have some residual value, some businesses can dispose of the asset by selling it for its current value. The value of an asset that has exceeded its useful life is referred to as the scrap value.

Scrap value is the estimated cost that a fixed asset can be sold for after factoring in full depreciation. The asset that is disposed of is usually salvaged into multiple parts, with each part valued and sold separately. The formula to calculate scrap value is:

### Example of Scrap Value

Depending on the method of depreciation adopted by a company, such as the straight-line method or declining-balance method, the scrap value of an asset will vary. For example, assume a company purchases machinery worth $75,000 and estimates that the useful life of the machinery is 8 years at a depreciable rate of 12%. Using the straight-line depreciation method, the annual depreciation per year will be 12% x$75,000 = $9,000. The residual amount that the company can get if it disposes of the machinery after 8 years is: Scrap Value =$75,000 – ($9,000 x 8) =$3,000.

If the company, instead used the declining-balance method of depreciation, its salvage value can be calculated as: