DIVERSIFIED ROYALTY CORP .  Notes toConsolidatedFinancial Statements  (Unaudited)  (Expressed in Canadian dollars)  Year ended December 31, 2014  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. These financial statements have been prepared on the historical cost basis e xcept for the  followingitems in the statement of financial position: 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).  These consolidated financial statements are presented in Canadian dollars, which is the  Company’s functional currency. 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:  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. 6  2. Basis of preparation:  (a) Statement of compliance: (b) Basis of measurement:   Restricted stock unit awards  and tenure liabilityare measured at fair value. (c) Functional and presentation currency: (d) Use of estimates and judgments: ( i ) Intangible assets (note 7): 