How can equipment be combined operationally?

Physically combining equipment is uncommon unless the equipment is mobile or unattached, such as forklifts, trucks, office equipment, and furniture. Combining companies are often at distant locations. Even when operations are consolidated, it is often preferable (if money permits) to purchase and install new equipment, rather than to remove, transport, and install older equipment from a discontinued operation. Furthermore, in addition to equipment purchased for replacement, some equipment may be purchased for enhancement—for example, to facilitate the integration of systems and operations.

What are the main valuation issues associated with the combination of equipment in a purchase?

All the equipment that will continue to remain in use after the acquisition should be restated at fair market value in use and integrated into the balance sheet accordingly. “Fair market value in use” means that certain delivery, installation, and setup costs should be included in the valuation of the equipment since an acquirer of the equipment would have to bear the costs if each individual unit were acquired separately. Appraisers may consider replacement or reproduction cost as if new (including installation and freight), less economic and physical obsolescence, as an appropriate measure of value. In general, equipment that is to be used in the future should be capitalized and depreciated rather than treated as an expense.[i]

What are the cost implications of combining equipment?

The value of some equipment held by the acquired entity and/or the acquirer may be written off because of costs associated with disposing of it or transferring it (the aforementioned cost of transportation, installation, and setup that is part of fair market value in use).