Merging two companies can be a way to secure new market share and reduce costs of production for the acquiring company. Acquiring assets during a merger is typical, but the buyer can often pick and choose which assets to include in the deal. Understanding how depreciation works and knowing the status of selected assets may allow for fine-tuning of the merger deal.

Depreciating Assets

Depreciating assets are those buildings, fixtures and equipment a company owns for which it amortizes the cost of the asset over the useful life of the assets, longer than a year, but with a definite lifespan. When increased production capacity is a desired outcome for a merger, acquiring production equipment may be important to the deal. The selling company will have a "book value" for these assets, derived from the original purchase price and accumulated depreciation at the point of sale. Fully depreciated assets have a book value of zero dollars, and no further depreciation can happen, even if the asset is still used.

Stock Buyout Merger

The buying company often transacts a merger by way of a stock buyout. The selling company retains all its assets, and only ownership as a whole changes. This transaction is, in effect, a takeover. In this case, fully depreciated assets are not affected by the transaction. These items remain on the books as fully depreciated, and any effect these assets have on the sale price is intangible. Accounting remains constant through the merger transaction.

Partial Asset Purchase

Acquiring only those assets needed from a selling company to meet a buyer's merger strategy has advantages where depreciated assets are involved. Internal Revenue Service rules require the sale price of such assets be allocated at the time of the purchase, and since these assets are again purchased and ownership changes from one company to another, depreciation on the new purchase price may be allowed by the new owner of the assets, following conventional depreciation methods.

Disadvantages of Asset Purchases

Merging by way of purchase of selected assets has drawbacks that may outweigh the advantage gained through resale of fully depreciated assets. The sale of these assets creates tax liability on both sides -- income tax for the seller and sales tax for the buyer. Additionally, state transfer taxes may apply. Selling vehicles involves transfer of title for each vehicle involved, and any property requires a real estate transaction. The added complexity of asset purchase may be more costly and time-consuming than a stock buyout.