Acquisition accounting is a method used when one company purchases another company. It records the purchase by showing:

The assets and liabilities of the company being bought at their fair value (current market value).

The difference between the purchase price and the net assets as goodwill (if purchase price is higher) or capital reserve (if lower).

In simple words, acquisition accounting means recording a business purchase properly in the books by valuing everything at its real worth on the date of purchase.

It is mainly applied under accounting standards like Ind AS 103 – Business Combinations and IFRS 3 Business Combinations.