Two companies,Company A and Company B,issue convertible bonds at par.If Company A uses IFRS and Company B follow U.S.GAAP,the amount Company A records for interest expense will be greater than the amount Company B records for interest expense.

Question

Quizplus · Accepted Answer

Under IFRS, the interest expense on convertible bonds is higher because the liability component is initially recognized at fair value, leading to a higher effective interest rate. Under U.S. GAAP, the entire bond is recorded as a liability, resulting in a lower interest expense.

Two Companies,Company a and Company B,issue Convertible Bonds at Par