COMMANDER RESOURCES LTD.  (An Exploration Stage Company)  Notes to Financial Statements  For the Years Ended December 31, 2012 and 2011  (Expressed in Canadian dollars)  3.  Summary of Significant Accounting Policies (Continued)  (i) Flow-through shares (j) Share-based payments (k) Income taxes (l) Loss per share  - 11 -  Shares subject to escrow restrictions are excluded from the weighted average number of common shares unless their  release is subject only to the passage of time.  Loss per share is calculated based on the weighted average number of common shares outstanding during the period.  The Company uses the treasury stock method for calculating diluted earnings per share. Under this method the  dilutive effect on earnings per share is calculated presuming the exercise of outstanding options, warrants and  similar instruments. It assumes that the proceeds of such exercise would be used to repurchase common shares at the  average market price during the year. However, the calculation of diluted loss per share excludes the effects of  various conversions and exercise of options and warrants that would be anti-dilutive.  The Company uses the liability method of accounting for income taxes. Under this method, deferred tax assets and  liabilities are recognized for the future tax consequences attributable to differences between the financial statement  carrying amounts of existing assets and liabilities and their respective tax basis. Deferred tax assets and liabilities are  measured using substantively enacted tax rates expected to apply to taxable income in the years in which those  temporary differences are expected to be recovered or settled. Deferred income tax assets also result from unused  loss carry-forwards, resource related pools and other deductions. A deferred tax asset is recognized for unused tax  losses, tax credits and deductible temporary differences to the extent that it is probable that future taxable profits will  be available against which they can be utilized. Deferred tax assets are reviewed at each reporting date and are  reduced to the extent that it is no longer probable that the related tax benefit will be realized. The fair value of the options is measured at grant date, using the Black-Scholes option pricing model, and is  recognized over the period that the options are earned. A forfeiture rate is estimated on the grant date and is adjusted  to reflect the actual number of options that vest. For directors, officers and employees, the fair value of the options is  measured at the date of grant, and the options are recognized over the vesting period. Share-based payments to non- employees are measured at the fair value of the goods or services received or the fair value of the equity instruments  issued. The fair value is recognized over the related service period, if it is determined the fair value of the goods or  services cannot be reliably measured, and are recorded at the date the goods or services are received. The offset to  the recorded cost is to share-based payments reserve. Consideration received on the exercise of stock options is  recorded as share capital and the related share-based payments reserve is transferred to share capital. Upon expiry,  the recorded value is transferred to deficit. The Company grants stock options to buy common shares of the Company to directors, officers, employees and non-employees. The Board of Directors grants such options for periods of up to ten years, with vesting periods  determined at its discretion and at prices not less than the closing market price on the grant date.  When flow-through expenditures are renounced, a portion of the deferred income tax assets not previously  recognized are recognized as a recovery of income taxes in the statement of income. The Company may, from time to time, issue flow-through common shares to finance its resource exploration  activities. Canadian income tax law permits the Company to renounce to the flow-through shareholders the income  tax attributes of resource exploration costs financed by such shares. Flow-through common shares are recognized in  equity based on the quoted price at the time the units are priced. The difference between the amount recognized in  common shares and the amount the investor pays for the shares is recognized as a liability, which is reversed into  earnings as eligible expenditures are incurred. The deferred tax impact is recorded as eligible expenditures are  incurred, provided the Company has the intention to renounce the related tax benefits. 