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## DIVERSIFIED ROYALTY CORP . 

Notes toConsolidatedFinancial Statements 

(Unaudited) 

(Expressed in Canadian dollars) 

Year ended December 31, 2014 

## 18. Loss on disposal of assets held for sale and related restructuring costs  (continued): 

The loss on disposal of assets held for sale and related restructuring costs recorded in 2013 are composed of the following items: 

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## 19. Financial risk management: 

The Company has exposure to the following risks from its use of financial instruments: credit risk, market risk, liquidity risk, currency risk and interest rate risk. This note presents information about the Company’s exposure to each of the above risks, the Company’s objectives, policies and processes for measuri ng and managing risk, and the Company’s management of capital. Further quantitative disclosures are included throughout these consolidated financial statements. 

The Company’s risk management policies are established to identify and analyze the risks faced by the Company, to set appropriate risk limits and controls, and to monitor risks and adherence to limits. Risk management policies and systems are reviewed regularly to reflect changes in market conditions and the Company’s activities. The Company, through its training and management standards and procedures, aims to develop a disciplined and constructive control environment in which all employees understand their roles and obligations. 

The Board of Directors has responsibility for the oversight of th e Company’s risk management framework. The Board of Directors has mandated the Audit Committee to review how management monitors compliance of the Company’s risk management policies and procedures and review the adequacy of the risk management policies an d procedures. 

## (a) Credit risk: 

Credit risk is the risk of financial loss to the  Company if a customer or counterparty to a financial instrument fails to meet its contractual obligations, and arises principally from the Company’s amounts due from Franworks . The Company monitors this risk through its regular review of the operating and financing activities of Franworks. The Company’s maximum exposure to credit risk is the value of its royalty fee receivable from Franworks. There are no past -due amounts. 

