How should government grants or incentives related to real estate development be recognized under IFRS?

• A. Recognized as a deduction from asset carrying amount if related to asset; otherwise as income, following IAS 20.
• B. Recognized as income regardless of grant nature.
• C. Not recognized until cash is received.
• D. Recognized as a liability.

Answer: (A)

Under IAS 20, government grants are handled differently depending on what the grant relates to. If the grant is tied to acquiring or constructing an asset, it is treated as a deduction from the asset’s carrying amount (or presented as a deferred government grant that is released to profit or loss over the asset’s useful life). This reduces the depreciation charged on the asset and reflects the grant as a reduction in the asset’s net cost.

If the grant is not related to an asset, it is recognized as income over the periods in which the entity recognizes the related costs, matching the grant to the expenses it helps fund.

So for real estate development, use a deduction from the asset’s carrying amount when the grant relates to the asset; otherwise, recognize the grant as income. This aligns with IAS 20’s guidance on the presentation and timing of government grants.