McConnell Dowell 2020 Annual Review

68 McConnell Dowell Group In determining an appropriate discount rate, the Group considers on a lease-by-lease basis whether there is an interest rate implicit in the lease or, if that rate cannot be readily determined, the Group uses judgement in determining an incremental weighted average borrowing rate. In calculating the weighted average incremental borrowing rate, the Group uses a portfolio approach whereby a single discount rate is calculated per portfolio of leases with reasonably similar characteristics. The basis of the discount rate is determined using a cost of debt rate that the Group would pay to borrow funds over a similar term, and with similar security, to obtain an asset of similar value to the right-of-use asset in particular jurisdiction. The Group considers the lease term as the non-cancellable period of a lease, together with periods covered by an option to extend the lease if the lessee is reasonably certain to exercise that option, and the periods covered by an option to terminate the lease if the lessee is reasonably certain not to exercise that option. The lease term includes any rent-periods provided to the lessee by the lessor. Leases and sale and leaseback transactions Material changes in one or more of these judgements and /or estimates, whilst not anticipated, would significantly affect the profitability of individual contracts and the Group’s overall results. The impact of a change in judgements and / or estimates has and will be influenced by the size and complexity of individual contracts within the portfolio at any point in time. The classification of leases as finance leases or operating leases requires judgement about the fair value of the leased asset, the split of the fair value between land and buildings, the economic life of the asset, whether or not to include renewal options in the lease terms and the appropriate discount rate to calculate the present value of the minimum lease payments. Impact of the COVID-19 on operations At 30 June 2020, the impact and duration of the current COVID-19 outbreak and the related measures taken to control it, including the likelihood of a global recession, are not yet known. In preparing these financial statements, the short-term impact on items such as financial instruments, working capital, sales and provisions has been fully considered. The valuations of financial assets and liabilities carried at fair value reflect inputs at the balance sheet date. In assessing the carrying value of its other non-current assets, the Group has assumed that, despite a significant short-term impact, long-term market conditions remain unchanged, as the timing and scale of the economic impact and recovery remain uncertain. Significant accounting estimates and assumptions Impairment of goodwill and intangibles with indefinite useful lives The Group determines whether goodwill and intangibles with indefinite useful lives are impaired at least on an annual basis. This requires an estimation of the recoverable amount in cash-generating units, using a value in use discounted cash flowmethodology, to which the goodwill and intangibles with indefinite useful lives are allocated. Useful lives of property, plant and equipment The Group reviews the estimated useful lives, residual values and depreciation methods of property, plant and equipment at the end of each reporting period. Employee provisions The company carries provisions for a number of employee entitlements including for bonus, redundancy and project incentives. These provisions are recognised and measured at the reporting date based on all available information in existence at that time, and while requiring management judgement of future outcomes, represent the best estimate of the amount required to settle the obligations. These obligations are both legal and constructive in nature. Movements in these provisions caused by revision to the estimate of fair value are recognised in the statement of profit and loss. New accounting standards and interpretations NewAccounting Standards and Interpretations effective from 1 July 2019 Other than the AASB 16 and AASB Interpretation 23 described above, the Group has not adopted any new or amended Accounting Standards or Interpretations that have had a material impact on the Group for the year ended 30 June 2020. AASB 16 Leases AASB 16 supersedes AASB 117 Leases (‘AASB 117’), AASB Interpretation 4 Determining whether an Arrangement contains a Lease (AASB Interpretation 4), AASB Interpretation 115 Operating Leases-Incentives and AASB Interpretation 127 Evaluating the Substance of Transactions Involving the Legal Form of a Lease. The standard sets out the principles for the recognition, measurement, presentation and disclosure of leases and requires lessees to account for all leases under a single on-balance sheet model. Lessor accounting under AASB 16 is substantially unchanged from accounting under AASB 117. Lessors will continue to classify all leases using the same classification principle as in AASB 117 and distinguish between two types of leases: operating and finance leases. The Group adopted AASB 16 using the modified retrospective method of adoption with a date of initial application of 1 July 2019. Under this method, the standard is applied retrospectively with the cumulative effect of initially applying the standard recognised at the date of initial application. Upon adoption, the lease liability is measured at the present value of the outstanding lease payments at the transition date. Present value is calculated on the basis of the lessee’s incremental borrowing rates as of 1 July 2019. Comparative period amounts were not restated. Right-of-use assets are measured at the amount of the related lease liability, adjusted for any prepaid or accrued lease payments. The group elected to use the transition practical expedient whereby existing contracts were not reassessed at the date Notes to the annual financial statements (continued) for the year ended 30 June 2020