DIVERSIFIED ROYALTY CORP .  Notes toConsolidatedFinancial Statements  (Unaudited)  (Expressed in Canadian dollars)  Year ended December 31, 2014  Applying the criteria outlined in IFRS 10, judgment is required in determining whether DIV  controls the Partnership. Making this judgment involves taking into consideration the  concepts of power over the Partnership, exposure and rights to variable returns, and the  ability to use power to direct the relevant activities of the Partnership so as to generate  economic returns. Using these criteria, management has determined that DIV ultimately  controls the Partnership through its 90% ownership of the GP. These annual consolidated financial statements have been prepared using the accounting  principles and policiesdescribedbelow. These annual consolidatedfinancial statements include the accounts of  DIV, its wholly-owned  subsidiary FW Royalties LimitedPartnership (the “FW LP”), and its 90% owned subsidiary, FW  Royalties GP Ltd. (the “FW GP”). The FW GP is the managing general partner of theFW LP. All significant intercompany transactions and balances have been eliminated on consolidation. Cash and cash equivalents consist of cash on hand, balances on deposit with banks, and short - term investments with terms of three months or less on the date of acquisition. Royalty revenue is recognized on theaccrual basis when earned. Royalty payments from  Franworks to FW LPare 6% of system sales for such period reported by Franworks  restaurants  in the Royalty Pool plus a make -whole payment, if required by a restaurant closure, based on  6% of lost system sales. System sales for any period and for any Franworks restaurant located  in Canada and the United States, as defined in the License and Royalty Agreement, means  the gross sales by such Franworks restaurant for such period. 7  (c) Revenuerecognition:  (b) Cash and cash equivalents:  (a) Basis of consolidation:  3. Significant accounting policies:   ( iii )Consolidation:  The Company does not assign any value t o the Exchangeable Partnership Units as they  do not currently meet the relevant criteria for exchange  into common shares ofDIV (note  7).  ( ii ) Fair value of Class B, C and D Partnership units (“Exchangeable Partnership Units” or  “Exchangeable units”):  (d) Use of estimates and judgments (continued): 2. Basis of preparation(continued): 