## DIVERSIFIED ROYALTY CORP . Notes toConsolidatedFinancial Statements 

(Unaudited) (Expressed in Canadian dollars) 

Year ended December 31, 2014 

## 3. Significant accounting policies(continued): 

(i) Provisions: 

A provision is recognized if, as a result of a past even t, the Company has a legal or constructiv e present obligation that can be estimated reliably, and it is probable that an outflow of economic benefits will be required to settle the obligation. Provisions are measured by discounting the expected future cash flows at a pre -tax rate that reflects c urrent market assessments of the time value of money and the risks specific to the liability. 

(j) Impairment of non-financial assets: 

Intangible assets are tested for impairment when events or changes in circumstances indicate that the carrying amount maynot be recoverable. Long -lived assets that are not amortized, such as the FW Rights, are subject to an annual impairment test. 

Intangible assets are tested for impairment when events or changes in circumstances indicate that the carrying amounts may not b e recoverable. For the purpose of measuring recoverable amounts, assets are grouped at the lowest levels for which there are separately identifiable cash flows (cash-generating units or “CGU’s”). The Company defines a CGU as the FW Rights. The recoverable amount is the higher of an asset’s fair value less costs to sell and value in use (being the present value of the expected future cash flows of the CGU). In assessing value in use, the estimated future cash flows are discounted to their present value u sing a pre-tax discount rate that reflects current market assessment of the time value of money and the risks specific to the asset. An impairment loss is recognized for the amount by which the asset’s carrying amount exceeds its recoverable amount. 

(k) Income tax: 

Income tax expense comprises current and deferred tax. Current tax and deferred tax are recognized in profit or loss except to the extent that it relates to a business combination, or items recognized directly in equity or in other comprehensive income. 

Current tax is the expected tax payable or receivable on the taxable income or loss for the year, using tax rates enacted or substantively enacted at the reporting date, and any adjustment to tax payable in respect of previous year. 

