DIVERSIFIED ROYALTY CORP .  Notes toConsolidatedFinancial Statements  (Unaudited)  (Expressed in Canadian dollars)  Year ended December 31, 2014  3. Significant accounting policies(continued):  (i) Provisions:  (j) Impairment of non-financial assets:  (k) Income tax:  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. 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. 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. 10 