COVID 19 & Mirvac Property Trust and its Controlled Entities.
Impact of COVID-19 on the group.
COVID 19 & Wesfarmers.
Impact of COVID-19 on the group.
The impacts of COVID 19 have been wide ranging across the organizations both in financial and operational terms. Consequently, it has effected financial statements of the organizations which may be due to valuing assets at fair value or testing assets for impairment.
The main focus areas for the Australian Securities and Investment Commission (ASIC) are impairment of goodwill and other non financial assets over past many years and due to COVID 19, this concern has further heightened.
COVID 19 has substantially impacted the values of many businesses.
This article discusses the challenges experienced by chosen companies in measuring and reporting impairment loss due to ongoing COVID 19 pandemic and impact on performance of the companies.
Two companies chosen that have disclosed and discussed the Impairment of Assets due to the ongoing pandemic situation are Mirvac Property trust and its controlled entities and Wesfarmers.
As per the requirements AASB 136, an asset is said to be impaired, if the asset’s recoverable amount, which is higher of value in use and fair value minus costs to sell is less than its carrying amount.
Although the COVID 19 pandemic caused challenge to operating conditions across the group’s business starting from the third quarter of the financial year ending 30th June’2020 the group recorded a high geared performance for the financial year ended 30 June 2020. Since the effects of COVID 19 are expected to be more severe and long lasting, it would effect the recoverable value and fair value of assets after the close of year ending 30th June’2020. COVID 19 did not have any adverse effect on the group’s operations and is not likely to have any material impact on the recoverable or fair value of the assets.
The effects of COVID 19 on the group have been considered while preparing financial for the year. The increase amount of consideration, analysis and senstivity have been involved while performing important estimates of accounting and key areas involving judgement. Due to uncertainties involved in the pandemic, changed estimates and outcomes Given the uncertainty of the extent of the pandemic, changes to the estimates and outcomes to be used in measuring group’s assets and liabilities are possible in future.
The group holds the Joint Ventures which hold the investments investment property. The effects of COVID 19 related to investment property also apply to underlying assets of the JV’s. Assessment has been made for recoverability in respect of JV’ using COVID 19 impacted cashflows and assumptions. None of the group’s investments in JV’s are considered to be impaired.
Since the tenants of the group have experienced significant cash flow and financial difficulties due to mandatory disclosure due to the pandemic, receivables pertaining to Retail, Office and Industrial ,receivables have significantly increased as at 30 June 2020.
Due to the economic effects of COVID 19 pandemic in the country, the amount of judgement and uncertainty has increased significantly in the assumptions which are involved in assessing fair value of investment properties.
The group has made assessment of effects of COVID 19 on impairment of assets including intangibles, wherein financial performance is assessed which include estimating cash flows and CGU’s earnings. The group is carrying out annual testing is carried out for impairment of goodwill. It is grouping the assets at the lowest level for which goodwill is monitored and allocated to cash generating units (CGU). It is allocating to groups of CGU identified according to operating segments.
COVID-19 had significant impacts on the Group in FY2020 including:
Industrial and Safety
An impairment of $ 40 million , which comes out to $ 28 million post tax was recognized in respect of other assets and recoverable amount of these assets was considered to be nil. An impairment of $ 270 millions on goodwill.
Industrial and safety perfomed below expections in the financial year ended 30th June 2020. The revenue of Industrial and Safety was $1,745 million was in line with the prior year. The earnings were $55 million which are far much below the prior period. An impairment of $ 310 million was recorded in the carrying value of the division which primarily included goodwill. There was decline in Workwear Group’s earnings reduced as compared to the prior year.
The recoverable amount of other CGU’s have been assessed along with goodwill and other intangible assets with indefinite life. The current economic conditions and performances of CGU’s the change in key assumption shall result in any impairment which is material to the group.
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