Remember that in Total War upgraded weapons and armour are not tracked at the individual level. Suppose you drag a unit A onto a unit B to merge them into a unit C. The weapon and armour of the merged unit C will be the same as that of unit B, not A. Hence always drag non-upgraded units onto upgraded ones (rather than vice versa) where possible.

Dragging an upgraded unit onto an non-upgraded one will make your men lose their upgrades.

PS: This is less important in RTW given that you can now queue up and upgrade multiple units in a turn. A nice new feature!