Question 6 (10 Marks) Alpha is a listed pharmaceutical company. You are the Director of Finance in this company. The financial statements of Alpha for the year ended 30 June 2020 are being prepared. One of the directors on the board who has legal background has sent you three questions regarding the financial statements as follow: "When I looked at the note which gave details of our property, plant and equipment, a separate component appeared for the first time this year. This component was described as a right-of-use asset. I discovered that this related to a building which we started to lease on 1 January 2020 to provide us with more capacity. The building is being leased on a five-year lease contract at an annual rental of $500,000, payable in arrears. There is no option to extend the lease at the end of the five-year period. Based on current implicit interest rates (10%), the lease present value is $1,895,000. Additionally, a direct cost of $105,000 incurred when arranging this lease with the owner. The carrying amount of the right-of-use asset which is shown in the statement of financial position is $1.8 million. I don't understand how we derive to this figure. I have the following three questions about this that I would like you to answer: The warehouse would cost at least $10 million to purchase outright and has a useful life of around 25 years. How can it be presented as Alpha's asset in these circumstances? Where does the figure of $1-8 million come from? Apart from the right-of-use asset, how else will this transaction affect our financial statements? I just require explanation with minimal workings for the issues raised. Required: Provide answers to the questions raised by one of Alpha's directors relating to the financial statements for the year ended 30th June 2020. Question 6 (10 Marks) Alpha is a listed pharmaceutical company. You are the Director of Finance in this company. The financial statements of Alpha for the year ended 30 June 2020 are being prepared. One of the directors on the board who has legal background has sent you three questions regarding the financial statements as follow: "When I looked at the note which gave details of our property, plant and equipment, a separate component appeared for the first time this year. This component was described as a right-of-use asset. I discovered that this related to a building which we started to lease on 1 January 2020 to provide us with more capacity. The building is being leased on a five-year lease contract at an annual rental of $500,000, payable in arrears. There is no option to extend the lease at the end of the five-year period. Based on current implicit interest rates (10%), the lease present value is $1,895,000. Additionally, a direct cost of $105,000 incurred when arranging this lease with the owner. The carrying amount of the right-of-use asset which is shown in the statement of financial position is $1.8 million. I don't understand how we derive to this figure. I have the following three questions about this that I would like you to answer: The warehouse would cost at least $10 million to purchase outright and has a useful life of around 25 years. How can it be presented as Alpha's asset in these circumstances? Where does the figure of $1-8 million come from? Apart from the right-of-use asset, how else will this transaction affect our financial statements? I just require explanation with minimal workings for the issues raised. Required: Provide answers to the questions raised by one of Alpha's directors relating to the financial statements for the year ended 30th June 2020