The certificated flight instructor (CFI) stated that during a local training flight, the helicopter was at a hover and he "rolled off power" to simulate an engine failure. According to the CFI, upon ground contact, the aft portion of helicopter's left skid "sank into the mud," the helicopter began to roll to the left, and he attempted corrective action as taught for a dynamic rollover. However, the helicopter rolled over on to its left side resulting in substantial damage to the main rotor blades and fuselage. The CFI and student pilot both stated that there were no mechanical malfunctions with the helicopter prior to the accident.