On 1 January 2011 the market rate of interest on a company's bonds is 5% and it issues a bond with the following characteristics:
| Face value | €50 million |
| Coupon rate, paid annually | 4% |
| Time to maturity | 10 years (31 December 2020) |
| Issue price (per €100) | 92.28 |
If the company uses IFRS, its interest expense (in millions) in 2011 is closest to:
B is correct. IFRS requires the effective interest method for the amortization of bond discounts/premiums. The bond is issued for 0.9228 × €50 million = €46.140.
Interest expense = Liability value × Market rate at issuance: 0.05 × €46.140 = €2.307.