# Scrap recovery credits

Estimating and reconciling the net value recovered from production scrap, with ownership, yield, settlement, and accounting boundaries.

Reviewed: 2026-11-01

Tags: costing, scrap, recovery, material-yield

## Meaning and accounting boundary

Distinguish a scrap estimate from the buyer’s settlement. ACCA separates normal-loss scrap value from abnormal losses and gains in process costing. [ACCA process costing](https://www.accaglobal.com/middle-east/en/student/exam-support-resources/fundamentals-exams-study-resources/f2/technical-articles/process-costing.html)

In the worked example, 1,000 kg of input yields 700 kg of good output, 250 kg of saleable scrap and 50 kg of unrecovered loss. The $250 scrap sale less $50 transport and handling gives a **$200 net credit**. Material cost falls from $5,000 to $4,800, or about $6.86 per kg of good output before conversion.

For financial reporting, inventory and by-product treatment depends on the applicable accounting framework. The IFRS Foundation's IAS 2 summary defines net realisable value as estimated selling price less completion and necessary selling costs, and states that inventories are measured at the lower of cost and net realisable value. That definition is different from applying a headline commodity price to gross scrap weight. [IFRS Foundation IAS 2 overview](https://www.ifrs.org/issued-standards/list-of-standards/ias-2-inventories/)

## Establish ownership before taking a credit

Physical possession does not establish entitlement to sale proceeds. Determine whether scrap belongs to the processor, material owner, customer, or another party under the applicable agreement. Argen's refining terms, for example, require the customer to warrant ownership free of third-party claims and specify when title transfers to Argen. Those are that refiner's transaction conditions, not a general ownership rule for machining scrap. [Argen refining terms](https://argen.com/refining-conditions)

A bounded government-contract example is **US FAR 32.503-15(c)**: in its progress-payment/title context, it permits ordinary-course disposition of current production scrap and requires the contracting officer to have scrap proceeds credited to contract-performance costs. Do not apply that provision to all commercial work or assume the party selling scrap may retain its economic benefit. [FAR 32.503-15, Acquisition.gov](https://www.acquisition.gov/far/32.503-15)

## Quantity, grade, and payable value

Keep these quantities separate:

- **Input and good output:** establish manufacturing yield and the residual mass balance.
- **Collected scrap:** material actually segregated and available for sale, excluding material not recovered.
- **Accepted or processed weight:** the buyer's specified basis after packaging, moisture, nonmetal content, or other agreed deductions.
- **Assayed content and payable quantity:** applicable where value depends on metal content and contractual accountability.

Argen distinguishes received weight excluding packaging from processed metal weight after removal of nonmetal components. Its payable quantity is processed weight multiplied by assay percentage and the applicable accountability rate for each payable metal. The rate is account-specific. Its settlement is precious-metal value less refining and treatment fees, with pricing normally on the settlement date. These precious-metal terms illustrate a settlement structure; they are not a universal formula for all steel, aluminum, or mixed scrap. [Argen weight and settlement definitions](https://argen.com/refining-conditions)

## Net-credit calculation

For a simple weight-priced sale, a transparent estimate is:

```text
Gross sale proceeds = accepted sale weight × agreed price per weight unit
Net recovery credit = gross sale proceeds - separately incurred recovery/selling costs
Net defined job cost = gross defined job cost - net recovery credit
```

Specify currency and units and identify deductions already embedded in a buyer's quoted net price. Do not deduct the same freight, recovery allowance, or fee twice. For assayed material, insert the contract's payable-metal calculation before valuation rather than multiplying unprocessed weight by a pure-metal market price.

Kitco's published FAQ says buying prices move with the market and normally apply at settlement unless previously confirmed. It distinguishes scratch testing from chargeable melt/assay work and lists payment options with different fees. A price indication, test result, settlement amount, and cash receipt can therefore be different milestones. Confirm the actual lot's price basis and deductions. [Kitco payment and fees](https://online.kitco.com/faq/payment-fees)

## Reconciled example: yield and net recovery

**Original illustration, not a customer rate or commodity quotation:** a job consumes 1,000 kg of material purchased at $5/kg, produces 700 kg of good output, collects 250 kg of saleable scrap, and loses 50 kg as unrecovered process material. Assume no inventory change. The mass balance is **1,000 = 700 + 250 + 50 kg**. Manufacturing good-output yield is 70%; saleable scrap recovery is 25% of input. Neither percentage is a refiner's accountability rate.

Assume the 250 kg is accepted at an invented $1/kg, with $40 external transport and $10 handling costs not included elsewhere:

| Cost or recovery | Amount |
| --- | ---: |
| Purchased input material | $5,000 |
| Gross scrap sale proceeds | $250 |
| Transport and handling deductions | $50 |
| Net recovery credit | **$200** |
| Material cost net of recovery | **$4,800** |

The resulting material cost is `$4,800 / 700 = $6.857142… per kg of good output`. It excludes conversion costs and is not a financial-statement inventory valuation. Using the $5/kg input purchase price for the scrap would claim $1,250 gross recovery instead of the assumed $250 sale value. Deducting the $200 credit and then recording the same $250 sale as a second job benefit would also double-count recovery unless the associated entries reverse the estimate.

## Normal loss, abnormal loss, and joint products

ACCA separates expected process loss from deviations and assigns abnormal loss/gain a share of process costs so it remains visible. Do not conceal an abnormal production loss by netting all scrap income into a favorable material-price variance. Recovery reduces the economic loss; it does not demonstrate acceptable yield. [ACCA normal and abnormal loss treatment](https://www.accaglobal.com/middle-east/en/student/exam-support-resources/fundamentals-exams-study-resources/f2/technical-articles/process-costing.html)

**AASB 102, December 2021 compilation**, operative for reporting periods beginning from January 2022 and before January 2027, provides a bounded reporting reference. Paragraph 14 describes rational, consistent allocation where joint conversion costs are not separately identifiable, and deduction of net realisable value for immaterial by-products. Paragraph 16 excludes abnormal wasted materials, labor, and other production costs from inventory cost. A commercially significant co-product should not automatically be treated as incidental scrap merely to reduce the main product's cost. Apply the relevant framework and materiality assessment. [AASB 102, paragraphs 14–16](https://standards.aasb.gov.au/aasb-102-dec-2021)

## Estimates, settlement, and reconciliation

Retain the source job or pool, material ownership, quantity basis, estimated price, expected deductions, and credit status. Reconcile estimated recovery to buyer weight/grade results and final net settlement; distinguish price, quantity, grade, and fee differences where useful. Kitco's FAQ describes assay verification and payment timing separately, reinforcing why shipping the scrap is not equivalent to receiving cash. [Kitco settlement timing](https://online.kitco.com/faq/payment-fees)

For example, if the illustrative job initially carries a $200 expected credit and ultimately realizes $185 net, the recovery difference is **$15 unfavorable**. Update or reverse the estimate under the chosen costing policy so cumulative job benefit equals $185. Keep unsold residual material, a settled receivable, and cash received distinct; an internal quoting allowance alone does not establish recognition in the financial accounts.

## Related reference

[Cost structure and cost bases](../cost-structure-and-cost-bases.md)