SCENARIO SIX

Funama Limited borrowed K800,000 on 1st January 2014 from Palama Bank. The loan attracts interest rate of 10% per annum. The loan was for the construction of its office block.

Construction commenced on 1st April 2014 and is likely to be completed on 31st March 2016.

On 30th September 2014, construction works were suspended because of striking construction workers. However, construction works resumed on 1st January 2015.

Note: Interest for the year to 31st December 2014 has been paid.

Required

Explain the accounting treatment of interest cost in the financial statements of Funama Limited for the year to 31st December 2014. (5 marks)