## DIVERSIFIED ROYALTY CORP . 

Notes toConsolidatedFinancial Statements (Unaudited) (Expressed in Canadian dollars) 

Year ended December 31, 2014 

## 2. Basis of preparation: 

(a) Statement of compliance: 

These consolidatedfinancial statements have been prepared in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board. The consolidated financial statements were authorized for issuance by the Board of Directors onMarch 20, 2015. 

(b) Basis of measurement: 

These financial statements have been prepared on the historical cost basis e xcept for the followingitems in the statement of financial position: 

 Restricted stock unit awards and tenure liabilityare measured at fair value. 

The preparation of financial statements in accordance with IFRS requires the use of certain critical accounting estimates. It also requires management t o exercise judgment in applying the Company’s accounting policies. The areas involving a higher degree of judgment or complexity, or areas where assumptions and estimates are significant to the financial statements are disclosed in note2(d). 

(c) Functional and presentation currency: 

These consolidated financial statements are presented in Canadian dollars, which is the Company’s functional currency. 

(d) Use of estimates and judgments: 

Significant estimates and judgments made by management in the applicat ion of IFRS that have a significant effect on the amount s recognized in these annual consolidatedfinancial statements are as follows: 

( i ) Intangible assets (note 7): 

DIV carries theFW Rights at historical cost comprising the amount of consideration paid for theFW Rights. DIV does not amortize the FW Rights as the Company has concluded they have an indefinite life. 

DIV tests theFW Rightsfor impairment annually, which requires that the Company use a valuation technique to determine if impairment exists.This valuation technique is dependent on a number of different variables which requires management to exercise judgment, and as a result, the estimated net cash flows the FW Rights are expected to generate could differ materially from actual results. 

