Changing game object based on variable state?

For example: I have equipped an item named hammer. On the floor there is an item named iron. If I use my hammer on it, the item on the floor changes to something else.

The items on the floor are prefabs that I've manually placed in my scenes. They each have a script with variables for tracking what other items have been used on them. So I would like for this item on the floor to change based on the variables in its script. How could I select a different prefab based on a variable, then maybe delete the old prefab and instantiate the new prefab at the same location?

Another possibility I thought of is just changing the item's mesh based on the variable? Because I mainly just need the visual to change, I could work around everything else. This seems easier, but would the results be janky if I'm changing an items mesh to a completely different mesh?