We are independent & ad-supported. We may earn a commission for purchases made through our links.
Advertiser Disclosure
Our website is an independent, advertising-supported platform. We provide our content free of charge to our readers, and to keep it that way, we rely on revenue generated through advertisements and affiliate partnerships. This means that when you click on certain links on our site and make a purchase, we may earn a commission. Learn more.
How We Make Money
We sustain our operations through affiliate commissions and advertising. If you click on an affiliate link and make a purchase, we may receive a commission from the merchant at no additional cost to you. We also display advertisements on our website, which help generate revenue to support our work and keep our content free for readers. Our editorial team operates independently of our advertising and affiliate partnerships to ensure that our content remains unbiased and focused on providing you with the best information and recommendations based on thorough research and honest evaluations. To remain transparent, we’ve provided a list of our current affiliate partners here.

What Is Scrap Value?

John Lister
Updated Feb 08, 2024
Our promise to you
WiseGeek is dedicated to creating trustworthy, high-quality content that always prioritizes transparency, integrity, and inclusivity above all else. Our ensure that our content creation and review process includes rigorous fact-checking, evidence-based, and continual updates to ensure accuracy and reliability.

Our Promise to you

Founded in 2002, our company has been a trusted resource for readers seeking informative and engaging content. Our dedication to quality remains unwavering—and will never change. We follow a strict editorial policy, ensuring that our content is authored by highly qualified professionals and edited by subject matter experts. This guarantees that everything we publish is objective, accurate, and trustworthy.

Over the years, we've refined our approach to cover a wide range of topics, providing readers with reliable and practical advice to enhance their knowledge and skills. That's why millions of readers turn to us each year. Join us in celebrating the joy of learning, guided by standards you can trust.

Editorial Standards

At WiseGeek, we are committed to creating content that you can trust. Our editorial process is designed to ensure that every piece of content we publish is accurate, reliable, and informative.

Our team of experienced writers and editors follows a strict set of guidelines to ensure the highest quality content. We conduct thorough research, fact-check all information, and rely on credible sources to back up our claims. Our content is reviewed by subject-matter experts to ensure accuracy and clarity.

We believe in transparency and maintain editorial independence from our advertisers. Our team does not receive direct compensation from advertisers, allowing us to create unbiased content that prioritizes your interests.

Scrap value is a term primarily used in finance in relation to depreciation. It is the projected value of an asset at the end of its projected useful life. This value affects the calculations used for producing the depreciation figures for financial accounts. The term “scrap” can also be used for a related meaning in insurance, specifically in deciding the payout if a car is written off.

Depreciation is both the concept that an asset loses value over time, and the accounting customs used to reflect this concept. The loss of value might be the result of physical deterioration, for example a machine wearing out. It could also be the result of an asset becoming obsolete, for example a computer that is eventually unable to run the latest edition of the software a company needs to use.

Both accounting customs and U.S. tax laws allow companies to break down this total loss of value in annual chunks, rather than wait until the asset really is useless. This helps avoid accounts suddenly showing a significant loss that may give a misleading impression into the company's annual accounts. It also spreads out the benefit the company gets by counting a portion of the loss against its taxable profits.

Once an accountant has assigned a predicted useful lifespan to the asset, which may be fixed by tax laws, he must decide what if any scrap value the asset will have at the end of this lifespan. This figure is also known as residual value. Scrap value can vary immensely: in the example of the worn out machine it may simply be the money that can be raised selling the metal to a salvage yard; in the example of the computer it could be a reasonable proportion of the purchase price if it is still in working order and could be useful to a second-hand buyer with less demanding software needs.

The accountant then deducts the scrap value from the purchase price to determine the total amount of depreciation for accounting purposes, and then breaks down this amount into chunks to be classed as a loss for each of the years during the asset's projected lifespan. Exactly how the amount is divided can vary: it may simply be equal portions, but other systems involve assigning larger portions during the early years. At the end of the lifespan, the actual scrap value of the asset must be calculated. The difference between this and the original projected scrap value must be added to that year's accounts as a profit or loss to balance the books.

Scrap value can also be used for insurance purposes, most notably auto insurance. If a car is involved in an accident and the insurer calculates the costs of repair would exceed the current value of the car, it will write off the car and pay what is known as a total loss settlement. This is the current market price for the car of the age and condition it was in before the accident, minus the scrap value. This reflects the fact that, theoretically at least, the owner could make back some money by selling the wreck for salvage.

WiseGeek is dedicated to providing accurate and trustworthy information. We carefully select reputable sources and employ a rigorous fact-checking process to maintain the highest standards. To learn more about our commitment to accuracy, read our editorial process.
John Lister
By John Lister
John Lister, an experienced freelance writer, excels in crafting compelling copy, web content, articles, and more. With a relevant degree, John brings a keen eye for detail, a strong understanding of content strategy, and an ability to adapt to different writing styles and formats to ensure that his work meets the highest standards.
Discussion Comments
John Lister
John Lister
John Lister, an experienced freelance writer, excels in crafting compelling copy, web content, articles, and more. With...
Learn more
WiseGeek, in your inbox

Our latest articles, guides, and more, delivered daily.

WiseGeek, in your inbox

Our latest articles, guides, and more, delivered daily.