Question

In: Accounting

Choose a company that is significantly affected by COVID-19 such as transportation, retail etc. The company...

Choose a company that is significantly affected by COVID-19 such as transportation, retail etc. The company must be a constituent of the S&P/ASX 300 index

Provide a detailed explanation of the impairment testing made by your company in the year ended 30 June 2019. Your explanation should include a discussion of i. the asset/s that were subject to impairment testing; ii. the type of estimations required to record the impairment; iii. the amount of the impairment write-down, if any; and iv. relevant disclosures about impairment testing in the 30 June 2019 financial report.

Solutions

Expert Solution

Ans-

The S&P/ASX 200 index is designed to measure the performance of the 200 largest stocks listed on the Australian Securities Exchange (ASX) by market capitalisation. This index is adjusted quarterly, to reflect the surging performance of new entrants, and the declining prospects of other companies. In the June 2020 index adjustment, several companies have been added and removed in a reflection of the performance of the economy following the outbreak of COVID-19.

Additions

Centuria Industrial REIT – CIP

Centuria Industrial REIT (CIP) is a real-estate investment trust, which owns and operates a portfolio of industrial real estate assets delivering rental income from 49 properties across metropolitan Australia.

Australia's property management subdivision has been heavily impacted by the outbreak of COVID-19. Social distancing measures and the general slowdown in economic activity have reduced revenue for many retail and commercial businesses, making it difficult for some firms to meet their rental obligations. The Retail Property Operators industry has been severely disrupted by social distancing regulations, with foot traffic in major retail areas down by over 50.0%. The Office Property Operators industry has also been impacted by the recent shift to working from home.

Megaport Limited – MP1

Megaport Limited (MP1) is a telecommunications infrastructure business that provides Network-as-a-Service (NaaS) to enterprise clients. The company provides elastic connectivity between businesses and cloud service providers. This enables businesses to vary how much bandwidth is required to use their data storage without installing fixed physical infrastructure.

The operations of Megaport Limited are included in the Data Processing and Web Hosting Services industry, which is expected to grow by 5.4% in 2019-20. The industry has surged over the past five years, due to rising domestic internet traffic and the expanding volume and availability of digital data. The industry is expected to continue to grow over the next five years, as corporate and government entities continue to outsource their data processing and web hosting requirements. However, increasing cybersecurity concerns could limit the rate that corporations move their operations to cloud servers, restricting domestic revenue growth.

Perseus Mining Limited – PRU

Perseus Mining Limited (PRU) is an operator and developer of gold mines in Ghana and Côte d’Ivoire. PRU has been a major beneficiary of a surge in the price of gold, reaching over $1,700 USD per ounce in recent months. This represents the highest price of gold since November 2012 in USD terms. A sharp decline in the value of the Australian dollar in March also contributed to gold prices achieving an all-time high in terms of the Australian dollar, reaching over $2,700 AUD per ounce in April 2020.

Historically low interest rates and rising uncertainty have driven global investors to increase holdings of gold, which is regarded as a safe-haven asset. Record buying of gold by the central banks of Russia, China, Turkey, Hungary and Kazakhstan have contributed to prolonged growth in the price of gold.

The surging price of gold has assisted miners operating within Australia, such as Newmont Australia, Newcrest Mining, and Gold Fields. Revenue growth for the Gold Ore Mining industry is expected to increase by 4.7% in 2019-20, following higher gold prices due to local and global economic uncertainty over COVID-19. The degree to which gold miners benefit from a higher gold price is mixed, as most major miners have pre-existing hedging instruments that have locked-in gold prices from prior years. While hedging may offset the benefits of higher prices, it also insulates mining firms from a future fall in the gold price, such as that which occurred in 2012-13.

Removals

Estia Health Limited – EHE

Estia Health Limited (EHE) is an operator in the Aged Care Residential Services industry. In 2018-19, the company derived 74.4% of its revenue from government subsidies and income, with resident contributions accounting for the balance. The Company has had three confirmed cases of COVID-19 within its workforce of approximately 7,500 staff, which occurred in March and April.

The Aged Care Residential Services industry has been supported by the government throughout the COVID-19 pandemic. In March 2020, the Federal Government announced $101.2 million in funding to educate and train aged care workers in infection control, and to enable aged care


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