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| “James E. Sinclair” |   | “Steven Van Tongeren” |   |
|---------------------------------|--------|-----------------------------------|--------|
| James E. Sinclair               |   | Steven Van Tongeren               |   |
| Chief Executive Officer         |   | Chief Financial Officer           |   |

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|   | KPMG LLP                         | Telephone | (604) 691-3000 |
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|   | Chartered Accountants            | Fax       | (604) 691-3031 |
|   | PO Box 10426 777 Dunsmuir Street | Internet  | www.kpmg.ca    |
|   | Vancouver BC V7Y 1K3             |      |           |
|   | Canada                           |      |           |

|   | KPMG LLP is a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative  (“KPMG International”), a Swiss entity.KPMG Canada provides services to KPMG LLP. |   |
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|   | KPMG LLP                         | Telephone | (604) 691-3000 |
|--------|----------------------------------|-----------|----------------|
|   | Chartered Accountants            | Fax       | (604) 691-3031 |
|   | PO Box 10426 777 Dunsmuir Street | Internet  | www.kpmg.ca    |
|   | Vancouver BC V7Y 1K3             |      |           |
|   | Canada                           |      |           |

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Shareholders and Directors of Tanzanian Royalty Exploration Corporation We have audited Tanzanian Royalty Exploration Corporation’s (“the Company”) internal control over financial reporting as of August 31, 2012, based on criteria established in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying “Management’s Annual Report on Internal Controls over Financial Reporting” included in the accompanying Management’s Discussion and Analysis. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.  KPMG LLP is a Canadian limited liability partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative  (“KPMG International”), a Swiss entity.   KPMG Canada provides services to KPMG LLP.         Tanzanian Royalty Exploration CorporationPage 2 In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of August 31, 2012, based on criteria established in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. We also have audited, in accordance with Canadian generally accepted auditing standards and the standards of the Public Company Accounting Oversight Board (United States), the consolidated statements of financial position of the Company as of August 31, 2012, August 31, 2011 and September 1, 2010, and the related consolidated statements of comprehensive loss, changes in equity and cash flows for the years ended August 31, 2012 and August 31, 2011, and our report dated November 16, 2012 expressed an unqualified opinion on those consolidated financial statements. //s// KPMG LLP Chartered Accountants November 16, 2012Vancouver, Canada        Tanzanian Royalty Exploration Corporation Consolidated Statements of Financial Position(Expressed in Canadian Dollars)    August 31,  August 31,  September 1, As at 2012  2011  2010       (Note 3)  (Note 3) Assets         Current Assets         Cash and cash equivalents (Note 19) $20,058,678  $32,428,471  $1,325,708 Other financial assets (Note 8)  17,850   29,400   40,425 Trade and other receivables (Note 16)  71,225   157,134   79,073 Inventory (Note 18)  248,395   223,518   229,196 Prepaid expenses (Note 15)  87,676   83,855   60,362     20,483,824   32,922,378   1,734,764 Property, plant and equipment (Note 6)  1,209,710   1,447,030   1,092,770 Mineral properties and deferred exploration (Note 5)  41,562,996   33,262,972   29,468,183    $63,256,530  $67,632,380  $32,295,717               Liabilities            Current Liabilities            Trade, other payables and accrued liabilities (Note 17) $2,318,393  $2,471,199  $620,795     2,318,393   2,471,199   620,795 Convertible debt (Note 7)  2,073,286   2,958,039   1,841,226 Warrant liability (Note 9)  8,114,000   5,711,250   -     12,505,679   11,140,488   2,462,021 Shareholders’ equity            Share capital (Note 9)  113,476,858   109,935,253   72,855,310 Share subscriptions received  -   -   874,149 Share based payment reserve (Note 11)  670,779   706,988   476,205 Warrants reserve (Note 10)  870,037   1,353,990     Accumulated deficit  (64,266,823)  (55,504,339)  (44,371,968)Total shareholders’ equity  50,750,851   56,491,892   29,833,696    $63,256,530  $67,632,380  $32,295,717  Nature of operations (Note 1)Segmented information (Note 21)Commitments (Notes 5 and 22)Subsequent event (Note 24) The accompanying notes are an integral part of these consolidated financial statements        Tanzanian Royalty Exploration Corporation Consolidated Statements of Comprehensive Loss(Expressed in Canadian Dollars) Year ended August 31, 2012  2011       (Note 3)         Administrative expenses      Depreciation $379,603  $463,169 Consulting  266,011   287,885 Directors’ fees  365,049   461,484 Office and general  437,380   443,774 Shareholder information  581,526   332,586 Professional fees  869,077   632,317 Salaries and benefits  1,596,951   1,601,832 Share based payments (Note 9)  777,630   368,161 Travel and accommodation  169,420   199,631     (5,442,647)  (4,790,839)Other income (expenses)        Foreign exchange  24,082   (518,794)Interest, net  274,913   25,042 Interest accretion  (102,785)  (181,076)Loss on other financial assets (Note 8)  (18,017)  (11,025)Issuance costs  -   (602,223)Change in value of warrant liability (Note 9)  (2,321,921)  (315,159)Property investigation costs  (84,518)  (36,542)Write-off of mineral properties and deferred exploration costs (Note 5)  (1,293,969)  (3,845,564)Modification of warrants (Note 9)  (183,000)  - Withholding tax recoveries (costs)  250,019   (856,191)          Net loss and comprehensive loss $(8,897,843) $(11,132,371)Loss per share – basic and diluted $(0.09) $(0.12)Weighted average # of shares outstanding – basic and diluted  100,151,347   93,839,466         Tanzanian Royalty Exploration CorporationConsolidated Statements of Changes in Equity(Expressed in Canadian Dollars)    Share Capital  Reserves          Number of     Share based     Share subscriptions  Accumulated       Shares  Amount  payments  Warrants  received  deficit  Total                        Balance at September 1, 2010  91,415,459  $72,855,310  $476,205  $-  $874,149  $(44,371,968) $29,833,696 Private placement, net of issue costs  2,532,119   12,912,833   -   919,193   (874,149)  -   12,957,877 Issued for prospectus, net of issue costs  5,263,158   21,617,629   -   434,797   -   -   22,052,426 Issued pursuant to share subscription agreements  144,430   800,000   -   -   -   -   800,000 Issued pursuant to Restricted Share Unit                            Plan  136,408   681,339   (681,339)  -   -   -   - RSU shares forfeited      -   (13,062)  -   -   -   (13,062)Issued on conversion of convertible debt agreement  247,173   971,107   (20,681)  -   -   -   950,426 Equity conversion value for convertible debt      -   70,404   -   -   -   70,404 Shares issued for property  20,006   97,035   -   -   -   -   97,035 Share based compensation      -   875,461   -   -   -   875,461 Total comprehensive loss for the year      -   -   -   -   (11,132,371)  (11,132,371)Balance at August 31, 2011  99,758,753   109,935,253   706,988   1,353,990   -   (55,504,339)  56,491,892 Issued on conversion of convertible debt agreement  233,318   950,213   (30,638)  -   -   -   919,575 Shares issued for services  35,000   115,834   -   -   -   -   115,834 Issued pursuant to Restricted Share Unit  182,866   1,024,793   (1,024,793)  -   -   -   - (“RSU”) Plan                            RSU shares forfeited      -   (264,528)  -   -   -   (264,528)Transfer of warrants to warrant liability      -   -   (216,188)  -   135,359   (80,829)Compensation warrants exercised  250,000   1,000,000   -   -   -   -   1,000,000 Reserve transferred on exercise of compensation warrants      450,765   -   (450,765)  -   -   - Modification of warrants          -   183,000   -   -   183,000 Share based compensation      -   1,283,750   -   -   -   1,283,750 Total comprehensive loss for the year          -   -   -   (8,897,843)  (8,897,843)Balance at August 31, 2012  100,459,937  $113,476,858  $670,779  $870,037  $-  $(64,266,823) $50,750,851  The accompanying notes are an integral part of these consolidated financial statements        Tanzanian Royalty Exploration Corporation Consolidated Statements of Cash Flow(Expressed in Canadian Dollars)Year ended August 31, 2012  2011       (Note 3) Operations      Net loss $(8,897,843) $(11,132,371)Adjustments to reconcile net loss to cash flow from operating activities:        Depreciation  379,603   463,169 Change in value of warrant liability  2,321,921   315,159 Modification of warrants  183,000   - Shares issued for services  50,359   - Share based payments  777,630   368,161 Loss on other financial assets  11,550   11,025 Cash interest paid  (67,964)  (60,000)Cash interest received  259,116   85,042 Interest, net  (274,913)  (25,042)Interest accretion  102,785   181,076 Non cash directors’ fees  289,448   453,845 Write-off of mineral properties  1,293,969   3,845,564 Net change in non-cash operating working capital items:        Trade and other receivables  85,909   (78,062)Inventory  (24,877)  5,678 Prepaid expenses  (3,821)  (23,493)Trade, other payables and accrued liabilities  (1,199,491)  1,850,404 Cash used in operations  (4,713,619)  (3,739,845)Investing        Mineral properties and exploration expenditures  (8,564,005)  (7,769,107)Option payments received and recoveries  50,114   279,244 Equipment and leasehold improvements, net  (142,283)  (817,429)Cash used in investing activities  (8,656,174)  (8,307,292)Financing        Share capital issued – net of issue costs  1,000,000   14,344,400 Issuance from prospectus  -   26,846,345 Issuance of convertible debt  -   2,033,304 Repayment of subscription received  -   (74,149)Cash provided from financing activities  1,000,000   43,149,900 Net (decrease) increase in cash and cash equivalents  (12,369,793)  31,102,763 Cash and cash equivalents, beginning of year  32,428,471   1,325,708 Cash and cash equivalents, end of year $20,058,678  $32,428,471  The accompanying notes are an integral part of these consolidated financial statements        Tanzanian Royalty Exploration Corporation Consolidated Statements of Cash Flow(Expressed in Canadian Dollars)Supplementary information:      Non-cash transactions:      Share based payments capitalized to mineral properties  17,138   53,455 Share issued pursuant to RSU plan  1,024,793   681,338 Shares issued in current year for subscriptions received in prior year  -   800,000 Warrants issued for prospectus  -   4,492,217 Warrants issued for private placement  -   919,193 Shares issued on conversion of convertible debt  950,213   971,107 Shares issued for services  115,834   -  The accompanying notes are an integral part of these consolidated financial statements        Tanzanian Royalty Exploration CorporationNotes to the Consolidated Financial StatementsFor the Years Ended August 31, 2012 and 2011 1.Nature of Operations The Company is in the process of exploring and evaluating its mineral properties.  The business of exploring and mining for minerals involves a high degree of risk.  The underlying value of the mineral properties is dependant upon the existence and economic recovery of mineral reserves, the ability to raise long-term financing to complete the development of the properties, government policies and regulations, and upon future profitable production or, alternatively, upon the Company’s ability to dispose of it’s interest on an advantageous basis; all of which are uncertain. The amounts shown as mineral properties and deferred expenditures represent costs incurred to date, less amounts amortized and/or written off, and do not necessarily represent present or future values. The underlying value of the mineral properties is entirely dependent on the existence of economically recoverable reserves, securing and maintaining title and beneficial interest, the ability of the Company to obtain the necessary financing to complete development, and future profitable production. At August 31, 2012 the Company had working capital of $18,165,431 (August 31, 2011 – $30,451,179), had not yet achieved profitable operations, has accumulated losses of $64,266,823 (August 31, 2011 – $55,504,339) and expects to incur further losses in the development of its business. In the long term, the Company will require additional financing in order to conduct its planned work programs on mineral properties, meet its ongoing levels of corporate overhead and discharge its future liabilities as they come due.   2.Basis of Preparation 2.1 Statement of compliance The Company was originally incorporated under the corporate name “424547 Alberta Ltd.” in the Province of Alberta on July 5, 1990, under the Business Corporations Act (Alberta).  The name was changed to “Tan Range Exploration Corporation” on August 13, 1991.  The name of the Company was again changed to “Tanzanian Royalty Exploration Corporation” (“TREC” or the “Company”) on February 28, 2006. The Company’s principal business activity is in the exploration and development of mineral property interests.  The Company’s mineral properties are located in United Republic of Tanzania. The consolidated financial statements of the Company as at and for the years ended August 31, 2012 and 2011 comprise the Company and its subsidiaries (together referred to as the “Company” or “Group”). These consolidated financial statements have been prepared in accordance with IFRS as issued by the International Accounting Standards Board.  The Company adopted IFRS on September 1, 2011 (with a transition date of September 1, 2010) and complied in accordance with IFRS 1 – First Time Adoption of IFRS as discussed in Note 3. These are the Company’s first IFRS consolidated annual financial statements.  Previously, the Company prepared its consolidated annual financial statements in accordance with Canadian Generally Accepted Accounting Principles (“Canadian GAAP”).  In preparing these consolidated financial statements management has amended certain accounting methods previously applied under Canadian GAAP financial statements to comply with IFRS.  The financial impact on the comparative figures for 2011 from the adoption IFRS has been presented in the reconciliations prepared in note 3 of the consolidated financial statements. These consolidated financial statements were approved and authorized by the Board of Directors of the Company on November 16, 2012.        Tanzanian Royalty Exploration CorporationNotes to the Consolidated Financial StatementsFor the Years Ended August 31, 2012 and 2011  2.Basis of Preparation (continued)  2.2 Basis of presentation The financial statements have been prepared on the historical cost basis except for certain non‐current assets and financial instruments, which are measured at fair value, as explained in the accounting policies set out in note 4. The comparative figures presented in these consolidated financial statements are in accordance with IFRS and have been audited. 2.3 Adoption of new and revised standards and interpretationsThe IASB issued a number of new and revised International Accounting Standards, International Financial Reporting Standards, amendments and related interpretations which are effective for the Company’s financial year beginning on or after September 1, 2011.  For the purpose of preparing and presenting the Financial Information for the relevant periods, the Company has consistently adopted all these new standards for the relevant reporting periods. At the date of authorization of these financial statements, the IASB and IFRIC has issued the following new and revised Standards and Interpretations which are not yet effective for the relevant reporting periods.     ●IFRS 7 ‘Financial Instruments, Disclosures’ - effective for annual periods beginning on or after January 1, 2013, IFRS 7 has been amended to provide more extensive quantitative disclosures for financial instruments that are offset in the statement of financial position or that are subject to enforceable master netting similar arrangements.  ●IFRS 9 ‘Financial Instruments: Classification and Measurement’ – effective for annual periods beginning on or after January 1, 2015, with early adoption permitted, introduces new requirements for the classification and measurement of financial instruments.  ●IFRS 10 ‘Consolidated Financial Statements’ – effective for annual periods beginning on or after January 1, 2013, with early adoption permitted, establishes principles for the presentation and preparation of consolidated financial statements when an entity controls one or more other entities.   ●IFRS 11 ‘Joint Arrangements’ - effective for annual periods beginning on or after January 1, 2013, with early adoption permitted, provides for a more realistic reflection of joint arrangements by focusing on the rights and obligations of the arrangement, rather than its legal form.   ●IFRS 12 ‘Disclosure of Interests in Other Entities’ - effective for annual periods beginning on or after January 1, 2013, with early adoption permitted, requires the disclosure of information that enables users of financial statements to evaluate the nature of, and risks associated with its interests in other entities and the effects of those interests on its financial position, financial performance and cash flows.   ●IFRS 13 ‘Fair Value Measurement’ - effective for annual periods beginning on or after January 1, 2013, with early adoption permitted, provides the guidance on the measurement of fair value and related disclosures through a fair value hierarchy.  ●IAS 1 ‘Presentation of Financial Statements’ - the IASB amended IAS 1 with a new requirement  for entities to group items presented in other comprehensive income on the basis of whether they are potentially reclassifiable to profit or loss.  ●IAS 12 ‘Income Taxes’ – In December 2010, effective for annual periods beginning on or after January 1, 2012,  IAS 12 Income Taxes was amended to introduce an exception to the existing principle for the measurement of deferred tax assets or liabilities arising on investment property measured at fair value.  As a result of the amendments, SIC 21, Income Taxes – recovery of revalued non-depreciable assets, will no longer apply to investment properties carried at fair value. The amendments also incorporate into IAS 12 the remaining guidance previously contained in SIC 21, which is withdrawn.  ●IAS 19 ‘Employee Benefits’ - effective for annual periods beginning on or after January 1, 2013, a number of amendments have been made to IAS 19, which included eliminating the use of the “corridor” approach in accounting for defined benefit plans and requiring defined benefit plan remeasurements to be presented in OCI.  The standard also includes amendments related to termination benefits as well as enhanced disclosures.          Tanzanian Royalty Exploration CorporationNotes to the Consolidated Financial StatementsFor the Years Ended August 31, 2012 and 2011  2.Basis of Preparation (continued) 2.3 Adoption of new and revised standards and interpretations (continued)     ●IAS 27 ‘Separate Financial Statements’ - effective for annual periods beginning on or after January 1, 2013, as a result of the issue of the new consolidation suite of standards, IAS 27 Separate Financial Statements has been reissued, as the consolidation guidance will now be included in IFRS 10. IAS 27 will now only prescribe the accounting and disclosure requirements for investments in subsidiaries, joint ventures and associates when an entity prepares separate financial statements.    ●IAS 28 ‘Investments in Associates and Joint Ventures’ - effective for annual periods beginning on or after January 1, 2013, as a consequence of the issue of IFRS 10, IFRS 11and IFRS 12, IAS 28 has been amended and will provide the accounting guidance for investments in associates and to set out the requirements for the application of the equity method when accounting for investments in associates and joint ventures. The amended IAS 28 will be applied by all entities that are investors with joint control of, or significant influence over, an investee.  ●IAS 32 ‘Financial instruments, Presentation’ – In December 2011, effective for annual periods beginning on or after January 1, 2013, IAS 32 was amended to clarify the requirements for offsetting financial assets and liabilities.  The amendments clarify that the right of offset must be available on the current date and cannot be contingent on a future date.    Management anticipates that where required, the above standards will be adopted at the applicable effective dates in the Company’s financial statements, and has not yet considered the impact of the adoption of these standards. 3.First Time Adoption of IFRS  The adoption of IFRS has resulted in significant changes to the reported financial position, results of operations, and cash flows of the Company. Presented below are reconciliations prepared by the Company to reconcile to IFRS the assets, liabilities, equity, net loss and cash flows of the Company from those reported under Canadian GAAP: The Company adopted IFRS on September 1, 2011 with a transition date of September 1, 2010 (the “Transition Date”). Under IFRS 1 ‘First time Adoption of International Financial Reporting Standards’, the IFRS are applied retrospectively at the Transition Date with all adjustments to assets and liabilities as stated under Canadian GAAP taken to retained earnings unless certain exemptions are applied. IFRS 1 does not permit changes to estimates that have been previously made. Accordingly, estimates used in the preparation of the Company’s opening IFRS statements of financial position as at the Transition Date are consistent with those that were made under Canadian GAAP. The optional exemptions elected and applied by the Company are as follows;     ●On the Transition Date, the Company has elected not to retrospectively apply IFRS 2, Share-based Payments (“IFRS 2”) to all share-based transactions at the date of transition. IFRS 2 will only be applied to equity instruments issued on or after, and that have not vested by, the Transition Date.      ●Business combinations that occurred prior to the Transition Date have not been restated. There have been no business combinations that occurred during the year ended August 31, 2011 that required re-statement in compliance with IFRS.      ●IAS 23 ‘‘Borrowing Costs’’ has been applied prospectively from the Transition Date. The impact of borrowing costs is described in the explanatory notes following the reconciliations between Canadian GAAP and IFRS.         Tanzanian Royalty Exploration CorporationNotes to the Consolidated Financial StatementsFor the Years Ended August 31, 2012 and 2011  3.First Time Adoption of IFRS (continued)  The Company has changed certain accounting policies to be consistent with IFRS as effective on August 31, 2012, the Company’s first annual IFRS reporting date.  The accounting policies set out in note 4 have been consistently applied in preparing the consolidated financial statements for the year ended August 31, 2012, and the comparative year ended August 31, 2011 and in the preparation of the opening IFRS statement of financial position at the Transition Date. These changes to the recognition and measurement of assets, liabilities, equity, and expenses within the Company’s consolidated financial statements, is summarized in the following reconciliations and accompanying notes thereto.        Tanzanian Royalty Exploration CorporationNotes to the Consolidated Financial StatementsFor the Years Ended August 31, 2012 and 2011  3.First Time Adoption of IFRS (continued) Below is the Company’s Consolidated Statement of Financial Position as at the transition date of September 1, 2010 under IFRS.    As at September 1, 2010         Effect of            transition to         GAAP  IFRS  IFRS NotesAssets           Current Assets           Cash and cash equivalents $1,325,708  $-  $1,325,708   Other financial assets  40,425   -   40,425   Trade and other receivables  79,073   -   79,073   Inventory  229,196   -   229,196   Prepaid expenses  60,362   -   60,362       1,734,764   -   1,734,764   Property, plant and equipment  1,092,770   -   1,092,770   Mineral properties and deferred exploration  29,956,026   (487,843)  29,468,183 (c)   $32,783,560  $(487,843) $32,295,717                   Liabilities              Current Liabilities              Trade, other payables and accrued liabilities $620,795  $-  $620,795       620,795   -   620,795   Convertible debt  1,841,226   -   1,841,226       2,462,021   -   2,462,021   Shareholders’ equity              Share capital  72,855,310   -   72,855,310   Share subscriptions received  874,149   -   874,149   Share based payment reserve  476,205   -   476,205   Accumulated deficit  (43,884,125)  (487,843)  (44,371,968)(c)    30,321,539   (487,843)  29,833,696      $32,783,560  $(487,843) $32,295,717           Tanzanian Royalty Exploration CorporationNotes to the Consolidated Financial StatementsFor the Years Ended August 31, 2012 and 2011  3.First Time Adoption of IFRS (continued) Reconciliation of assets, liabilities and equity      As at August 31, 2011              GAAP     IFRS     Effect oftransition toIFRS     Notes  Assets                              Current Assets                              Cash and cash equivalents   $32,428,471   $—   $32,428,471         Other financial assets     29,400     —     29,400         Trade and other receivables     157,134     —     157,134         Inventory     223,518     —     223,518         Prepaid expenses     83,855     —     83,855                32,922,378     —     32,922,378         Property, plant and equipment     1,447,030     —     1,447,030         Mineral properties and deferred exploration     33,744,578     (481,606)   33,262,972     (b), (c)       $68,113,986   $(481,606) $67,632,380                                         Liabilities                              Current Liabilities                              Trade, other payables and accrued liabilities   $2,471,199   $—   $2,471,199                2,471,199     —     2,471,199         Convertible debt     2,958,039     —     2,958,039         Warrant liability     —     5,711,250     5,711,250     (a)         5,429,238     5,711,250     11,140,488         Shareholders’ equity                              Share capital     110,671,701     (736,448)   109,935,253     (a)  Share based payment reserve     706,988     —     706,988         Warrants reserve     5,411,410     (4,057,420)   1,353,990     (a)  Accumulated deficit     (54,105,351)   (1,398,988)   (55,504,339)   (a,) (b,) (c)         62,684,748     (6,192,856)   56,491,892              $68,113,986   $(481,606) $67,632,380                Tanzanian Royalty Exploration CorporationNotes to the Consolidated Financial StatementsFor the Years Ended August 31, 2012 and 2011  3. First Time Adoption of IFRS (continued) Reconciliation of comprehensive loss    Year ended August 31, 2011         Effect of            transition to         GAAP  IFRS  IFRS Notes             Administrative Expenses           Depreciation $463,169  $-  $463,169   Consulting  287,885   -   287,885   Directors’ fees  461,484   -   461,484   Office and general  443,774   -   443,774   Shareholder information  332,586   -   332,586   Professional fees  632,317   -   632,317   Salaries and benefits  1,601,832   -   1,601,832   Share based payments  368,161   -   368,161   Travel and accommodation  199,631   -   199,631       (4,790,839)  -   (4,790,839)  Other income (expense)              Foreign exchange  (518,794)  -   (518,794)  Interest, net  18,805   6,237   25,042 (b)Interest accretion  (181,076)  -   (181,076)  Loss on other financial assets  (11,025)  -   (11,025)  Issuance costs  -   (602,223)  (602,223)(a)Change in value of warrant liability  -   (315,159)  (315,159)(a)Property investigation costs  (36,542)  -   (36,542)  Withholding tax  (856,191)  -   (856,191)  Write-off of mineral properties and deferred exploration  (3,845,564)  -   (3,845,564)  Net loss and comprehensive loss $(10,221,226) $(911,145) $(11,132,371)          Tanzanian Royalty Exploration CorporationNotes to the Consolidated Financial StatementsFor the Years Ended August 31, 2012 and 2011  3. First Time Adoption of IFRS (continued)  Reconciliation of Cash Flows    Year ended August 31, 2011         Effect of            transition         GAAP  to IFRS  IFRS Notes             Operations           Net loss $(10,221,226) $(911,145) $(11,132,371)(a), (b)Adjustments to reconcile net loss to cash flow from operating activities:              Depreciation  463,169   -   463,169   Share based payments  368,161   -   368,161   Loss on other financial assets  11,025   -   11,025   Change in value of warrant liability  -   315,159   315,159 (a)Cash interest paid  -   (60,000)  (60,000)(d)Cash interest received  -   85,042   85,042 (d)Interest, net  -   (25,042)  (25,042)(d)Interest accretion  181,076   -   181,076   Non cash directors’ fees  453,845   -   453,845   Write off of mineral properties  3,845,564   -   3,845,564   Net change in non-cash operating working capital items:              Trade and other receivables  (78,062)  -   (78,062)  Inventory  5,678   -   5,678   Prepaid expenses  (23,493)  -   (23,493)  Trade, other payables and accrued liabilities  1,850,404   -   1,850,404       (3,143,859)  (595,986)  (3,739,845)  Investing              Mineral properties and exploration expenditures  (7,762,870)  (6,237)  (7,769,107)(b)Option payments received and recoveries  279,244   -   279,244   Equipment and leasehold improvements  (817,429)  -   (817,429)      (8,301,055)  (6,237)  (8,307,292)  Financing              Share capital issued – net of issue costs  13,742,177   602,223   14,344,400 (a)Issuance of convertible debt  2,033,304   -   2,033,304   Issuance from prospectus  26,846,345   -   26,846,345   Repayment of subscription received  (74,149)  -   (74,149)      42,547,677   602,223   43,149,900   Net increase in cash and cash equivalents  31,102,763   -   31,102,763   Cash and cash equivalents, beginning of year  1,325,708   -   1,325,708   Cash and cash equivalents, end of year $32,428,471  $-  $32,428,471           Tanzanian Royalty Exploration CorporationNotes to the Consolidated Financial StatementsFor the Years Ended August 31, 2012 and 2011  3.First Time Adoption of IFRS (continued)   Notes to Reconciliations a) Foreign currency warrants Under Canadian GAAP - Foreign currency denominated warrants were classified within equity and initially measured at their relative fair value with no subsequent re-measurement. Under IFRS - Foreign currency denominated warrants are considered a derivative as they are not indexed solely to the entity’s own stock.  The Company’s functional currency is the Canadian dollar and the exercise price of the warrants is denominated in US dollars therefore, the warrants cannot be classified as equity-based on the evaluation of the instruments’ settlement provisions as they were not indexed solely to the Company’s common shares.  As a result, these instruments are treated as derivative liabilities and carried at fair value as determined by the Black-Scholes option pricing model at each reporting period, with changes in fair values recorded as gains or losses in the statement of comprehensive loss.  Further, IFRS requires that the proportionate share of issuance costs relating to the foreign currency warrants be expensed.  b) Borrowing costs Under Canadian GAAP - The Company may choose to adopt a policy to capitalize borrowing costs attributable to property, plant and equipment under certain conditions. In addition, Canadian GAAP does not provide specific guidance as to identifying qualifying assets. Under IFRS - IAS 23 ‘‘Borrowing Costs’’ (‘‘IAS 23’’) provides specific guidance on the requirement to capitalize borrowing costs related to qualifying assets. IFRS 1 provides an optional exemption permitting the application of IAS 23 prospectively. On transition to IFRS, the Company elected to apply IAS 23 prospectively as permitted under IFRS 1. c) Mineral propertiesOn the acquisitions of various mineral properties over the years, a deferred income tax liability was recognized and measured in accordance with Canadian GAAP, with a corresponding increase to the carrying value of mineral properties. Under IAS 12 Income Taxes, the Company has applied the initial recognition exemption to the acquisition of these mineral properties as the resulting deferred tax liability arose from a transition that was not considered a business combination and at the time of the transaction affected neither accounting loss nor taxable loss. As a result, under IFRS the deferred tax liability and the related gross-up in the carrying value of mineral properties is not recognized, either on acquisition or subsequently. As at September 1, 2010, this accounting policy change has resulted in a $487,843 (August 31, 2011 - $487,843) decrease in the carrying value of mineral properties with a corresponding charge to the accumulated deficit being the remaining capitalized cost at the Transition Date. d) PresentationThe presentation in accordance with IFRS differs from the presentation in accordance with Canadian GAAP, such as the presentation of cash interest paid and received in the statement of cash flows. Please refer to the consolidated statements of financial position and consolidated statements of comprehensive loss, and changes in equity and cash flows for the impact of the specific IFRS changes noted above.        Tanzanian Royalty Exploration CorporationNotes to the Consolidated Financial StatementsFor the Years Ended August 31, 2012 and 2011  4.Summary of Significant Accounting Policies  4.1 Basis of consolidationThe consolidated financial statements include the financial statements of the Company and its wholly controlled subsidiaries: Tanzania American International Development Corporation 2000 Limited (“Tanzam”), Tancan Mining Co. Limited (“Tancan”) and Buckreef Gold Company Ltd., a majority owned Joint Venture Company. Control is achieved when the Company has the power to govern the financial and operating policies of an entity so as to obtain benefits from its activities.  All intra‐company transactions, balances, income and expenses are eliminated in full on consolidation. 4.2 Mineral properties All direct costs related to the acquisition and exploration and development of specific properties are capitalized as incurred.  If a property is brought into production, these costs will be amortized against the income generated from the property.  If a property is abandoned, sold or impaired, an appropriate charge will be made to the statement of comprehensive loss at the date of such impairment. Discretionary option payments arising on the acquisition of mining properties are only recognized when paid. Amounts received from other parties to earn an interest in the Company's mining properties are applied as a reduction of the mining property and deferred exploration and development costs, except for administrative reimbursements which are credited to operations.  Consequential revenue from the sale of metals, extracted during the Company's test mining activities, is recognized on the date the mineral concentrate level is agreed upon by the Company and customer, as this coincides with the transfer of title, the risk of ownership, the determination of the amount due under the terms of settlement contracts the Company has with its customer, and collection is reasonably assured. Revenues from properties earned prior to the commercial production stage are deducted from capitalized costs.  The amounts shown for mining claims and related deferred costs represent costs incurred to date, less amounts expensed or written off, reimbursements and revenue, and do not necessarily reflect present or future values of the particular properties.  The recoverability of these costs is dependent upon discovery of economically recoverable reserves and future production or proceeds from the disposition thereof.  The Company reviews the carrying value of a mineral exploration property when events or changes in circumstances indicate that the carrying value may not be recoverable. If the carrying value of the property exceeds its fair value, the property will be written down to fair value with the provision charged against operations in the year of impairment. An impairment is also recorded when management determines that it will discontinue exploration or development on a property or when exploration rights or permits expire. Ownership in mineral properties involves certain risks due to the difficulties in determining the validity of certain claims as well as the potential for problems arising from the frequently ambiguous conveyance history characteristic of many mineral interests.  The Company has investigated the ownership of its mineral properties and, to the best of its knowledge, ownership of its interests are in good standing.  Capitalized mineral property exploration costs are those directly attributable costs related to the search for, and evaluation of mineral resources that are incurred after the Company has obtained legal rights to explore a mineral property and before the technical feasibility and commercial viability of a mineral reserve are demonstrable.  Any cost incurred prior to obtaining the legal right to explore a mineral property are expensed as incurred. Field overhead costs directly related to exploration are capitalized and allocated to mineral properties explored.  All other overhead and administration costs are expensed as incurred.  Once an economically viable reserve has been determined for a property and a decision has been made to proceed with development has been approved, acquisition, exploration and development costs previously capitalized to the mineral property are first tested for impairment and then classified as property, plant and equipment under construction.        Tanzanian Royalty Exploration CorporationNotes to the Consolidated Financial StatementsFor the Years Ended August 31, 2012 and 2011  4.Summary of Significant Accounting Policies (continued)   4.3 Property, plant and equipment Property, plant and equipment (“PPE”) are stated at cost less accumulated depreciation and accumulated impairment losses. The cost of an item of PPE consists of the purchase price, any costs directly attributable to bringing the asset to the location and condition necessary for its intended use and an initial estimate of the costs of dismantling and removing the item and restoring the site on which it is located. Depreciation is provided at rates calculated to write off the cost of PPE, less their estimated residual value, using the declining balance method over the following expected useful lives:  Assets Rate Machinery and equipment 20% to 30% Automotive  30% Computer equipment  30% Drilling equipment and automotive equipment  6.67% Leasehold improvements  20% An item of PPE is derecognized upon disposal, when held for sale or when no future economic benefits are expected to arise from the continued use of the asset. Any gain or loss arising on disposal of the asset, determined as the difference between the net disposal proceeds and the carrying amount of the asset, is recognized in the consolidated statement of comprehensive loss. The Company conducts an annual assessment of the residual balances, useful lives and depreciation methods being used for PPE and any changes arising from the assessment are applied by the Company prospectively.  Where an item of plant and equipment comprises major components with different useful lives, the components are accounted for as separate items of plant and equipment. Expenditures incurred to replace a component of an item of property, plant and equipment that is accounted for separately, including major inspection and overhaul expenditures are capitalized. 4.4 Decommissioning, restoration and similar liabilities (“Asset retirement obligation” or “ARO”)The Company recognizes liabilities for statutory, contractual, constructive or legal obligations, including those associated with the reclamation of mineral properties and PPE, when those obligations result from the acquisition, construction, development or normal operation of the Company’s assets. Initially, a liability for an asset retirement obligation is recognized at its fair value in the period in which it is incurred. Upon initial recognition of the liability, the corresponding asset retirement obligation is added to the carrying amount of the related asset and the cost is amortized as an expense over the economic life of the asset using the declining balance method.  Following the initial recognition of the asset retirement obligation, the carrying amount of the liability is increased for the passage of time and adjusted for changes to the current market‐based discount rate, and adjusted for changes to the amount or timing of the underlying cash flows needed to settle the obligation.   As of August 31, 2012, August 31, 2011 and September 1, 2010 no liability for asset retirement obligations exists.        Tanzanian Royalty Exploration CorporationNotes to the Consolidated Financial StatementsFor the Years Ended August 31, 2012 and 2011  4.Summary of Significant Accounting Policies (continued) 4.5 Share based payments Share based payment transactionsEmployees (including directors and senior executives) of the Company receive a portion of their remuneration in the form of share based payment transactions, whereby employees render services as consideration for equity instruments (“equity‐settled transactions”). In situations where equity instruments are issued and some or all of the goods or services received by the entity as consideration cannot be specifically identified, they are measured at fair value of the share‐based payment. Equity settled transactionsThe costs of equity settled transactions with employees are measured by reference to the fair value at the date on which they are granted. The costs of equity‐settled transactions are recognized, together with a corresponding increase in equity, over the period in which the performance and/or service conditions are fulfilled, ending on the date on which the relevant employees become fully entitled to the award (“the vesting date”). The cumulative expense is recognized for equity‐settled transactions at each reporting date until the vesting date reflects the Company’s best estimate of the number of equity instruments that will ultimately vest. The profit or loss charge or credit for a period represents the movement in cumulative expense recognized as at the beginning and end of that period and the corresponding amount is represented in share based payment reserve. No expense is recognized for awards that do not ultimately vest, except for awards where vesting is conditional upon a market condition, which are treated as vesting irrespective of whether or not the market condition is satisfied provided that all other performance and/or service conditions are satisfied. Where the terms of an equity‐settled award are modified, the minimum expense recognized is the expense as if the terms had not been modified. An additional expense is recognized for any modification which increases the total fair value of the share‐based payment arrangement, or is otherwise beneficial to the employee as measured at the date of modification. The dilutive effect of outstanding options is considered as additional dilution in the computation of earnings per share. 4.6 Taxation Income tax expense represents the sum of tax currently payable and deferred tax. Current income taxCurrent income tax assets and liabilities for the current and prior periods are measured at the amount expected to be recovered from or paid to the taxation authorities. The tax rates and tax laws used to compute the amount are those that are enacted or substantively enacted by the date of the statement of financial position. Deferred income taxDeferred income tax is provided using the liability method on temporary differences at the date of the statement of financial position between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes.        Tanzanian Royalty Exploration CorporationNotes to the Consolidated Financial StatementsFor the Years Ended August 31, 2012 and 2011  4.Summary of Significant Accounting Policies (continued)  4.6 Taxation (continued) Deferred income tax liabilities are recognized for all taxable temporary differences, except: • where the deferred income tax liability arises from the initial recognition of goodwill or of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss; and • in respect of taxable temporary differences associated with investments in subsidiaries, associates and interests in joint ventures, where the timing of the reversal of the temporary differences can be controlled and it is probable that the temporary differences will not reverse in the foreseeable future. Deferred income tax assets are recognized for all deductible temporary differences, carry forward of unused tax credits and unused tax losses, to the extent that it is probable that taxable profit will be available against which the deductible temporary differences and the carry forward of unused tax credits and unused tax losses can be utilized except: • where the deferred income tax asset relating to the deductible temporary difference arises from the initial recognition of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss; and • in respect of deductible temporary differences associated with investments in subsidiaries, associates and interests in joint ventures, deferred income tax assets are recognized only to the extent that it is probable that the temporary differences will reverse in the foreseeable future and taxable profit will be available against which the temporary differences can be utilized. The carrying amount of deferred income tax assets is reviewed at each date of the statement of financial position and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred income tax asset to be utilized. Unrecognized deferred income tax assets are reassessed at each date of the statement of financial position and are recognized to the extent that it has become probable that future taxable profit will allow the deferred tax asset to be recovered. Deferred income tax assets and liabilities are measured at the tax rates that are expected to apply to the year when the asset is realized or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted at the date of the statement of financial position. Deferred income tax relating to items recognized directly in equity is recognized in equity and not in the statement of comprehensive loss. Deferred income tax assets and deferred income tax liabilities are offset if, and only if, a legally enforceable right exists to set off current tax assets against current tax liabilities and the deferred tax assets and liabilities relate to income taxes levied by the same taxation authority on either the same taxable entity or different taxable entities which intend to either settle current tax liabilities and assets on a net basis, or to realize the assets and settle the liabilities simultaneously, in each future period in which significant amounts of deferred tax assets or liabilities are expected to be settled or recovered.        Tanzanian Royalty Exploration CorporationNotes to the Consolidated Financial StatementsFor the Years Ended August 31, 2012 and 2011  4.Summary of Significant Accounting Policies (continued)  4.7 Loss per shareThe basic loss per share is computed by dividing the net loss by the weighted average number of common shares outstanding during the period. The diluted loss per share reflects the potential dilution of common share equivalents, such as outstanding restricted stock units and share purchase warrants, in the weighted average number of common shares outstanding during the year, if dilutive. 4.8 Financial assetsAll financial assets are initially recorded at fair value and designated upon inception into one of the following four categories: held‐to‐maturity, available‐for‐sale, loans‐and-receivables or at fair value through profit or loss (“FVTPL”).  The Company initially recognizes loans and receivables on the date they are originated. All other financial assets are recognized on the trade date at which the Company becomes party to the contractual provisions of the instruments.  Subsequent to initial recognition, financial assets classified as FVTPL are measured at fair value with unrealized gains and losses recognized through earnings. The Company’s other financial assets are classified as FVTPL. Financial assets classified as loans‐and‐receivables and held‐to‐maturity are measured at amortized cost. The Company’s cash and cash equivalents and trade and other receivables are classified as loans‐and-receivables.  Subsequent to initial recognition, financial assets classified as available‐for‐sale are measured at fair value with unrealized gains and losses recognized in other comprehensive income (loss) except for losses in value that are considered other than temporary. During the periods presented, the Company has not classified any financial assets as available‐for‐sale.  Transactions costs associated with FVTPL financial assets are expensed as incurred, while transaction costs associated with all other financial assets are included in the initial carrying amount of the asset.  The Company derecognizes a financial asset when the contractual rights to the cash flows from the asset expire, or it transfers the rights to receive the contractual cash flows on the financial asset in a transaction in which substantially all the rights and rewards of ownership of the financial asset are transferred. 4.9 Financial liabilitiesAll financial liabilities are initially recorded at fair value and designated upon inception as FVTPL or other‐financial‐liabilities on the trade date at which the Company becomes party to the contractual provisions of the instrument. Financial liabilities classified as other-financial-liabilities are initially recognized at fair value less directly attributable transaction costs. After initial recognition, other-financial-liabilities are subsequently measured at amortized cost using the effective interest method.  The effective interest method is a method of calculating the amortized cost of a financial liability and of allocating interest expense over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash payments through the expected life of the financial liability, or, where appropriate, a shorter period. The Company’s trade and other payables and convertible debt are classified as other-financial-liabilities. Financial liabilities classified as FVTPL include financial liabilities held for trading and financial liabilities designated upon initial recognition as FVTPL. Derivatives, including separated embedded derivatives are also classified as FVTPL unless they are designated as effective hedging instruments. Fair value changes on financial liabilities classified as FVTPL are recognized through the statement of comprehensive loss. At August 31, 2012 and 2011 the Company’s warrant liability has been classified as FVTPL.        Tanzanian Royalty Exploration CorporationNotes to the Consolidated Financial StatementsFor the Years Ended August 31, 2012 and 2011  4.Summary of Significant Accounting Policies (continued)  4.9 Financial liabilities (continued)The Company derecognizes a financial liability when its contractual obligations are discharged or cancelled, as they expire. 4.10 Impairment of financial assets The Company assesses at each date of the statement of financial position whether a financial asset is impaired. Assets carried at amortized costIf there is objective evidence that an impairment loss on assets carried at amortized cost has been incurred, the amount of the loss is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows discounted at the financial asset’s original effective interest rate. The carrying amount of the asset is then reduced by the amount of the impairment. The amount of the loss is recognized in profit or loss. If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognized, the previously recognized impairment loss is reversed to the extent that the carrying value of the asset does not exceed what the amortized cost would have been had the impairment not been recognized. Any subsequent reversal of an impairment loss is recognized in profit or loss. In relation to trade receivables, a provision for impairment is made and an impairment loss is recognized in profit and loss when there is objective evidence (such as the probability of insolvency or significant financial difficulties of the debtor) that the Company will not be able to collect all of the amounts due under the original terms of the invoice. The carrying amount of the receivable is reduced through use of an allowance account. Impaired debts are written off against the allowance account when they are assessed as uncollectible. Available-for-saleIf an available‐for‐sale asset is impaired, an amount comprising the difference between its cost and its current fair value, less any impairment loss previously recognized in profit or loss, is transferred from equity to profit or loss. Reversals in respect of equity instruments classified as available‐for‐sale are not recognized in profit or loss. 4.11 Impairment of non-financial assetsAt each date of the statement of financial position, the Company reviews the carrying amounts of its tangible and intangible assets to determine whether there is an indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss (if any). Where it is not possible to estimate the recoverable amount of an individual asset, the Company estimates the recoverable amount of the cash‐generating unit to which the assets belong. Recoverable amount is the higher of fair value less costs to sell and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre‐tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. If the recoverable amount of an asset (or cash‐generating unit) is estimated to be less than its carrying amount, the carrying amount of the asset (or cash‐generating unit) is reduced to its recoverable amount. An impairment loss is recognized immediately in the statement of comprehensive loss, unless the relevant asset is carried at a re-valued amount, in which case the impairment loss is treated as a revaluation decrease.        Tanzanian Royalty Exploration CorporationNotes to the Consolidated Financial StatementsFor the Years Ended August 31, 2012 and 2011  4.Summary of Significant Accounting Policies (continued)  4.11 Impairment of non-financial assets (continued) Where an impairment loss subsequently reverses, the carrying amount of the asset (cash-generating unit) is increased to the revised estimate of its recoverable amount, but so that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognized for the asset (or cash‐generating unit) in prior years. 4.12 Cash and cash equivalentsCash and cash equivalents in the statement of financial position comprise cash at banks and on hand, and short term deposits with an original maturity of three months or less, which are readily convertible into a known amount of cash. 4.13 Related party transactionsParties are considered to be related if one party has the ability, directly or indirectly, to control the other party or exercise significant influence over the other party in making financial and operating decisions. Parties are also considered to be related if they are subject to common control or common significant influence.  Related parties may be individuals or corporate entities. A transaction is considered to be a related party transaction when there is a transfer of resources or obligations between related parties. Related party transactions that are in the normal course of business and have commercial substance are measured at the exchange amount, being the amount agreed by the parties to the transaction. 4.14 Foreign currency transactions Functional and presentation currency Items included in the financial statements of each of the Company’s entities are measured using the currency of the primary economic environment in which the entity operates (“the functional currency”). The functional currency of the Company and each of its subsidiaries is the Canadian Dollar (“CDN”). The consolidated financial statements are presented in Canadian Dollars which is the Company’s presentation currency. Transactions and balances Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions or valuation where items are re-measured. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at period-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognized in the statement of comprehensive loss.        Tanzanian Royalty Exploration CorporationNotes to the Consolidated Financial StatementsFor the Years Ended August 31, 2012 and 2011  4.Summary of Significant Accounting Policies (continued) 4.15 Significant accounting judgments and estimates The preparation of these consolidated financial statements requires management to make judgements and estimates and form assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and reported amounts of revenues and expenses during the reporting period. On an ongoing basis, management evaluates its judgements and estimates in relation to assets, liabilities, revenue and expenses.  Management uses historical experience and various other factors it believes to be reasonable under the given circumstances as the basis for its judgements and estimates. Actual outcomes may differ from these estimates under different assumptions and conditions. The most significant estimates relate to the appropriate depreciation rate for property, plant and equipment, the valuation of warrant liability, the recoverability of accounts receivable, the valuation of deferred income tax amounts, impairment testing of mineral properties and deferred exploration and property, plant and equipment and the calculation of share‐based payments. The most significant judgements relate to the recognition of deferred tax assets and liabilities and asset retirement obligations, the determination of the economic viability of a project or mineral property and the determination of functional currencies. 4.16 InventoryInventory consists of supplies for the Company’s drilling rig to be consumed during the course of exploration development and operations. Cost represents the delivered price of the item. 5.Mineral Properties The Company explores or acquires gold or other precious metal concessions through its own efforts or through the efforts of its subsidiaries.  All of the Company’s concessions are located in Tanzania. The Company’s mineral interests in Tanzania are initially held under prospecting licenses granted pursuant to the Mining Act, 2010 (Tanzania) for a period of up to four years, and are renewable two times for a period of up to two years each.  Annual rental fees for prospecting licenses are based on the total area of the license measured in square kilometres, multiplied by USD$100/sq.km for the initial period, USD$150/sq.km for the first renewal and USD$200/sq.km for the second renewal.  With each renewal at least 50% of the licensed area, if greater than 20 square kilometres, must be relinquished and if the Company wishes to keep the relinquished one-half portion, it must file a new application for the relinquished portion.  There is also an initial one-time “preparation fee” of USD$500 per license. Upon renewal, there is a renewal fee of USD$300 per license. The Company assessed the carrying value of mineral properties and deferred exploration costs as at August 31, 2012 and recorded a write-down of $1,293,969 during the year ended August 31, 2012 (2011 - $3,845,564) The Company abandoned certain licenses not deemed cost effective and beneficial to the Company’s future operations and wrote off associated costs.        Tanzanian Royalty Exploration CorporationNotes to the Consolidated Financial StatementsFor the Years Ended August 31, 2012 and 2011  5.Mineral Properties (continued) The continuity of expenditures on mineral properties is as follows:    Itetemia(a) Luhala(b) Kigosi(c) Lunguya(d) Kanagele(e) Tulawaka(f) Ushirombo(g) Mbogwe(h) Biharamulu(i) Buckreef(j) Other(k) Total Balance, September 1, 2010 $5,945,934 $3,842,114 $11,402,215 $2,725,692 $1,065,772 $620,209 $246,303 $80,753 $122,029 $- $3,417,162 $29,468,183 Exploration expenditures:                                     Camp, field supplies and travel  -  -  321,490  64,326  -  -  -  -  -  -  35,892  421,708 Exploration and field overhead  13,957  7,408  1,255,558  152,294  2,833  971  18,052  3,821  2,300  598,722  183,972  2,239,888 Geological consulting and field wages  -  -  22,331  -  -  -  -  -  -  -  -  22,331 Geophysical and geochemical  -  -  191,604  66,550  -  -  -  -  -  -  42  258,196 Property acquisition costs  25,870  -  234,910  -  55,882  15,595  -  -  -  3,822,521  259,706  4,414,484 Trenching and drilling  -  -  324,942  244,002  -  -  -  -  -  -  -  568,944 Recoveries  (162,702) (121,896) -  -  -  (600) -  -  -  -  -  (285,198)    (122,875) (114,488) 2,350,835  527,172  58,715  15,966  18,052  3,821  2,300  4,421,243  479,612  7,640,353     5,823,059  3,727,626  13,753,050  3,252,864  1,124,487  636,175  264,355  84,574  124,329  4,421,243  3,896,774  37,108,536 Write-offs  -  -  -  (68,189) -  -  -  (2,535) -  -  (3,774,840) (3,845,564)Balance, August 31, 2011  5,823,059  3,727,626  13,753,050  3,184,675  1,124,487  636,175  264,355  82,039  124,329  4,421,243  121,934  33,262,972 Exploration expenditures:                                     Camp, field supplies and travel  14,565  -  116,566  34,976  -  -  -  -  -  424,035  -  590,142 Exploration and field overhead  1,420  1,340  47,581  71,737  2,755  3,573  6,285  12,463  7,211  1,124,484  88,114  1,366,963 Geological consulting and field wages  -  -  -  -  -  -  -  -  -  664,513  -  664,513 Geophysical and geochemical  -  30,381  -  90,050  -  -  -  -  -  569,283  -  689,714 Property acquisition costs  37,070  -  3,892  13,326  17,693  17,092  -  -  -  108,804  13,070  210,947 Trenching and drilling  -  -  39,636  28,527  -  -  -  -  -  6,053,665  -  6,121,828 Recoveries  (41,834) -  -  -  -  -  -  (176) (2,250) -  (5,854) (50,114)    11,221  31,721  207,675  238,616  20,448  20,665  6,285  12,287  4,961  8,944,784  95,330  9,593,993     5,834,280  3,759,347  13,960,725  3,423,291  1,144,935  656,840  270,640  94,326  129,290  13,366,027  217,264  42,856,965 Write-offs  (46,544) -  -  -  (297,588) (331,402) (266,379) (13,019) (129,290) -  (209,747) (1,293,969)Balance, August 31, 2012 $5,787,736 $3,759,347 $13,960,725 $3,423,291 $847,347 $325,438 $4,261 $81,307 $- $13,366,027 $7,517 $41,562,996        Tanzanian Royalty Exploration CorporationNotes to the Consolidated Financial StatementsFor the Years Ended August 31, 2012 and 2011  5.Mineral Properties (continued) (a) Itetemia Project: Through prospecting and mining option agreements, the Company has options to acquire interests in several ltetemia property prospecting licenses.  The prospecting licenses comprising the Itetemia property are held by the Company; through the Company's subsidiaries, Tancan or Tanzam.  In the case of one prospecting license, Tancan acquired its interest pursuant to the State Mining Corporation (“Stamico”) Venture Agreement, as amended June 18, 2001 and July 2005. Stamico retains a 2% royalty interest as well as a right to earn back an additional 20% interest in the prospecting license by meeting 20% of the costs required to place the property into production.  The Company retains the right to purchase one-half of Stamico's 2% royalty interest in exchange for USD$1,000,000. The Company is required pay to Stamico an annual option fee of USD$25,000 per annum until commercial production. As at August 31, 2012, one license is subject to an Option Agreement with Barrick Exploration Africa Ltd. (BEAL) (note 5(l)). In January 2007, the Company concluded an Option and Royalty Agreement with Sloane Developments Ltd. (“Sloane”) over a portion of the Company's Itetemia Property.  Under the Option Agreement, the Company granted Sloane the right to earn a beneficial interest ranging from 90% to 100% in certain ltetemia prospecting licenses in the Lake Victoria greenstone belt of Tanzania.  In December 2011, Sloane returned the Itetemia licenses to the Company and the Option agreement was terminated. During the year ended August 31, 2012, the Company abandoned certain licenses in the area and wrote off $46,544 (years ended August 31, 2011 - nil; 2010 - nil) related to deferred exploration costs associated with licenses the Company does not intend to renew. (b) Luhala Project: In January 2007, the Company concluded an Option Royalty Agreement with Sloane for its Luhala property.  Under the Option Agreement, the Company granted Sloane the right to earn a 100% beneficial interest in the Luhala Project.  In December 2011, Sloane returned the remaining Luhala licenses to the Company and the Option Agreement was terminated. During the year ended August 31, 2012, the Company did not abandon any licenses in the area and no write-off was taken in this area (years ended August 31, 2011 - nil; 2010 - nil). (c) Kigosi: The Kigosi Project is principally located within the Kigosi Game Reserve controlled area.  Through prospecting and mining option agreements, the Company has options to acquire interests in several Kigosi prospecting licenses. Pursuant to a Purchase and Sale Agreement with Ashanti Goldfields (Cayman) Limited (Ashanti) dated September 26, 2006 for the repurchase of its rights to the Kigosi property, on March 8, 2011 the second of two tranches of the acquisition was satisfied by the issuance to Ashanti of 20,006 common shares of the Company for the purchase of the Dongo property. During fiscal 2012, the Company entered into an agreement with Stamico providing Stamico a 15% carried interest in the Kigosi Project. During the year ended August 31, 2012, the Company did not abandon any licenses in the area therefore no write off was taken for this property (years ended August 31, 2011 - nil; 2010 - nil).        Tanzanian Royalty Exploration CorporationNotes to the Consolidated Financial StatementsFor the Years Ended August 31, 2012 and 2011  5.Mineral Properties (continued) (d) Lunguya: During the year ended August 31, 2012, the Company did not abandon any licenses in the area and no write-off was taken in this area (years ended August 31, 2011 - $68,189; 2010 - nil). (e) Kanagele: During the year ended August 31, 2012, the Company abandoned certain licenses in the area and wrote off $297,588 for this property (years ended August 31, 2011 - nil; 2010 - $nil). (f) Tulawaka: The Company owns or has options to acquire interests ranging from 65% to 90% in the licenses through prospecting and option agreements. Three licenses in the Tulawaka area are subject to an option agreement with MDN Inc. (MDN) (note 5(m)). During the year ended August 31, 2012, the Company abandoned certain licenses in the area and wrote off $331,402 for this property (years ended August 31, 2011 - nil; 2010 - nil). (g) Ushirombo: During the year ended August 31, 2012, the Company abandoned certain licenses and wrote off $266,379 in this area (years ended August 31, 2011 - nil; 2010 - nil). (h) Mbogwe: During the year ended August 31, 2012, the Company abandoned certain licenses in the area and wrote off $13,019 for this property (years ended August 31, 2011 - $2,535 ; 2010 - $nil). (i) Biharamulo: Five Biharamulo licenses are subject to the option agreement with MDN (note 5(m)). During the year ended August 31, 2012, the Company abandoned certain licenses in the area and wrote off $129,290 for this property (years ended August 31, 2011 - nil; 2010 - nil), to reflect the fact that the Company does not currently intend to pursue further exploration activities on the property. (j) Buckreef Gold Project: On December 21, 2010, the Company announced it was the successful bidder for the Buckreef Gold Mine Re-development Project in northern Tanzania (the Buckreef Project).  Pursuant to the terms of the heads of agreement dated December 16, 2010, the Company paid USD $3,000,000 to Stamico in consideration of the transaction.  On October 25, 2011, a Definitive Joint Venture Agreement was entered into with Stamico for the development of the Buckreef Gold Project.  Through its wholly-owned subsidiary, Tanzania American International Development Corporation 2000 Limited (Tanzam), the Company holds a 55% interest in the joint venture company, Buckreef Gold Company Limited, with Stamico holding the remaining 45%.  The Company has 100% control over all aspects of the joint venture company. In accordance with the joint venture agreement, the Company has to arrange financing, incur expenditure, make all decisions and operate the mine in the future. The Company obligations and commitments include completing a preliminary economic assessment, feasibility study and mine development. Stamico’s involvement is to contribute the licences and rights to the property and received a 45% interest in Buckreef Gold Company Limited. The Company has no other obligations to Stamico, until it reaches production stage and will have to pay 45% of the net income generated.        Tanzanian Royalty Exploration CorporationNotes to the Consolidated Financial StatementsFor the Years Ended August 31, 2012 and 2011  5.Mineral Properties (continued) There is supervisory board made up of 4 directors of Tanzam and 3 of Stamico who will be updated with periodic reports and review major decisions. Amounts paid to Stamico and subsequent expenditure on the property were capitalized under Mineral Properties and reported under Buckreef Gold Company Limited. (k) Other properties: The Company has options to acquire interests in their other properties.  To maintain these options and licenses, the Company must make the following future payments:   USD$201319,000 During the year ended August 31, 2012, the Company abandoned certain licenses and options included in other properties and wrote off $209,747 (Year ended August 31, 2011 - $3,774,837; 2010 - $10,464) of costs related to the abandoned area located within the other properties category. (l) Option Agreement with BEAL: BEAL had the option to acquire the total rights, titles, and interests of the Company in prospecting licenses in various properties, herein called the BEAL project. In exchange for this option, BEAL paid USD$100 to the Company. To maintain and exercise the option, BEAL was required to incur USD$250,000 in exploration and development costs on the BEAL project within a year of closing the agreement (completed), and thereafter, BEAL must expend USD$50,000 each year for each retained prospecting license. In addition, BEAL must make USD$40,000 annual payments to the Company for each retained prospecting licenses in December 2006 and subsequent years. Within thirty days after commercial production, BEAL must pay the Company USD$1,000,000 and an additional USD$1,000,000 on each of the next two years.  BEAL will also pay the owner of the license 1.5% of net smelter returns. The Company has received from BEAL notices of relinquishment for all rights, titles and interests in all but one prospecting license included in the Option Agreement, which is located at Itetemia. (m) Option Agreement with MDN: On January 20, 2003, as amended on March 18, 2003 and January 9, 2007, the Company entered into an agreement with MDN granting MDN the exclusive option to acquire the total rights, titles, and interests of the Company in certain prospecting licenses.  To maintain and exercise the option, MDN has made annual payments for each retained prospecting license, incurred minimum exploration and development expenditures and certain drilling requirements undertake all obligations of the Company in respect of the licenses and was to complete a feasibility study by December 31, 2009.  Upon exercise of the option, the Company shall retain a net smelter return royalty fluctuating between 0.5% to 2.0% depending on the price of gold.  On November 11, 2009, the Company was advised by MDN that a feasibility study and production decision would not be made by December 31, 2009.  In consideration for a second extension of the feasibility study and production decision date to December 31, 2010, MDN issued 125,000 common shares of MDN to the Company.  Discussions are continuing with no agreement to date.  The prospecting licenses under option to MDN are located at Biharamulo and Tulawaka.        Tanzanian Royalty Exploration CorporationNotes to the Consolidated Financial StatementsFor the Years Ended August 31, 2012 and 2011  5.Mineral Properties (continued) (n) Option Agreement with Kazakh Africa Mining Ltd. (Kazakh): In January 2009, the Company signed an Option and Royalty Agreement with Kazakh over the Company’s Mwadui Project area diamond prospecting licenses and applications located in the Lake Victoria Greenstone Belt of Tanzania which is included in “other” properties.  Kazakh has the option to acquire a 100% interest in the licenses by fulfilling various option payments over a 72-month period, whereby the Company will then receive a gross overriding royalty of 1.5% on all diamonds sold, and a net smelter returns royalty of up to 2.0% on any other minerals produced.  On August 7, 2011 the Company gave Kazakh notice of default for non-payment of overdue amounts under the option and royalty agreement.  On September 5, 2011 the option rights of Kazakh were terminated. (o) Option Agreement with Songshan Mining Co. Ltd., a corporation based in the People's Republic of China (Songshan): On February 25, 2009, the Company entered into an Option and Royalty Option Agreement with Songshan, granting Songshan an option to acquire a 100% interest in the Company's 26 Kabanga nickel licenses and applications located in northwestern Tanzania, by completing certain exploration work over a period of three years, and then making a production decision, subject to a 3% net smeller royalty reserved in favor of the Company.  In January 2010, Jinchuan Mining, a Chinese metals company, concluded an agreement with Songshan to participate in the exploration and development of the Kabanga nickel properties.  In 2012, the Company and Songshan commenced discussions regarding a possible new joint venture involving the Company, Songshan and a new third party as direct participants to explore and develop the Kabanga nickel properties.        Tanzanian Royalty Exploration CorporationNotes to the Consolidated Financial StatementsFor the Years Ended August 31, 2012 and 2011  6.Property, plant and equipment    Drilling     Computer  Machinery and  Leasehold       equipment  Automotive  Equipment  equipment  improvements  Total Cost                  As at September 1, 2010 $464,487  $209,434  $120,597  $953,426  $5,596  $1,753,540 Additions  -   101,567   37,644   678,218   -   817,429 Disposals  -   (8,361)  (349)  (124,295)  (1,127)  (134,132)As at August 31, 2011  464,487   302,640   157,892   1,507,349   4,469   2,436,837 Additions  -   -   12,372   40,582   89,329   142,283 Disposals  -   -   (78,619)  (20,778)  (4,469)  (103,866)As at August 31, 2012 $464,487  $302,640  $91,645  $1,527,153  $89,329  $2,475,254                           Accumulated depreciation                        As at September 1, 2010 $199,997  $95,996  $81,715  $277,840  $5,222  $660,770 Depreciation expense  17,633   37,260   24,979   382,923   374   463,169 Removed on disposal of asset  -   (8,361)  (349)  (124,295)  (1,127)  (134,132)As at August 31, 2011  217,630   124,895   106,345   536,468   4,469   989,807 Depreciation expense  14,509   49,606   22,646   274,977   17,866   379,604 Disposals  -   -   (78,620)  (20,778)  (4,469)  (103,867)As at August 31, 2012 $232,139  $174,501  $50,371  $790,667  $17,866  $1,265,544                           Net book value                        As at September 1, 2010 $264,490  $113,438  $38,882  $675,586  $374  $1,092,770 As at August 31, 2011 $246,857  $177,745  $51,547  $970,881  $-  $1,447,030 As at August 31, 2012 $232,348  $128,139  $41,274  $736,486  $71,463  $1,209,710         Tanzanian Royalty Exploration CorporationNotes to the Consolidated Financial StatementsFor the Years Ended August 31, 2012 and 2011  7.Convertible Debt (i)             August 31, 2012:    August  September  October  Total    2010  2010  2010    Gross proceeds at inception $1,000,000  $1,000,000  $1,060,000  $3,060,000 Fair value of liability portion  965,375   965,375   1,023,297   2,954,047 Fair value of equity portion  34,625   34,625   36,703   105,953 Liability portion of convertible debt:                Initial fair value of debt component $965,375  $965,375  $1,023,297  $2,954,047 Issuance costs  (111,160)  (3,359)  (22,383)  (136,902)Accretion expense  101,523   82,065   90,091   273,679 Interest paid  (36,164)  (30,000)  (31,800)  (97,964)Conversion into common shares  (919,574)  -   -   (919,574)Closing balance of liability portion $-  $1,014,081  $1,059,205  $2,073,286 Equity portion of convertible debt:                Opening balance $-  $-  $-  $- Initial fair value of equity component  34,625   34,625   36,703   105,953 Issuance costs  (3,987)  (120)  (804)  (4,911)Conversion into common shares  (30,638)  -   -   (30,638)Closing balance of equity portion $-  $34,505  $35,899  $70,404  (ii)             August 31, 2011:    May  August  September  October  Total    2010  2010  2010  2010    Gross proceeds at inception $1,000,000  $1,000,000  $1,000,000  $1,060,000  $4,060,000 Fair value of liability portion  978,997   965,375   965,375   1,023,297   3,933,044 Fair value of equity portion  21,003   34,625   34,625   36,703   126,956 Liability portion of convertible debt:                    Opening balance  -   -   -   -   - Initial fair value of equity component  978,997   965,375   965,375   1,023,297   3,933,044 Issuance costs  (14,996)  (111,160)  (3,359)  (22,413)  (151,928)Accretion expense  33,137   85,534   39,369   46,022   204,062 Interest paid  (26,712)  (30,000)  -   -   (56,712)Conversion into common shares  (970,426)  -   -   -   (970,426)Closing balance of liability portion $-  $909,749  $1,001,385  $1,046,906  $2,958,039 Equity portion of convertible debt:                    Opening balance $-  $-  $-  $-  $- Initial fair value of equity component  21,003   34,625   34,625   36,703   126,956 Issuance costs  (322)  (3,987)  (120)  (804)  (5,233)Conversion into common shares  (20,681)  -   -   -   (20,681)Closing balance of equity portion $-  $30,638  $34,505  $35,899  $101,042         Tanzanian Royalty Exploration CorporationNotes to the Consolidated Financial StatementsFor the Years Ended August 31, 2012 and 2011  7.Convertible Debt (continued) (iii)             September 1, 2010:    May 2010  August 2010     Total Gross proceeds at inception $1,000,000  $1,000,000  $   $2,000,000 Fair value of liability portion  978,997   965,375       1,944,372 Fair value of equity portion  21,003   34,625       55,628 Liability portion of convertible debt:                Opening balance  -   -       - Initial fair value of debt component  978,997   965,375       1,944,372 Issuance costs  (14,996)  (111,160)      (126,156)Accretion expense  12,540   10,470       23,010 Interest paid  -   -       - Conversion into common shares  -   -       - Closing balance of liability portion $976,541  $864,685      $1,841,226 Equity portion of convertible debt:                Opening balance $-  $-      $- Initial fair value of equity component  21,003   34,625       55,628 Issuance costs  (322)  (3,987)      (4,309)Conversion into common shares  -   -       - Closing balance of equity portion $20,681  $30,638      $51,319  On May 28, 2010, the Company issued a three-year convertible promissory note to an arm's length third party in the principal amount of $1,000,000 bearing interest at 3% and convertible into 222,173 common shares at a price of $4.501 per share.  A bonus of 25,000 common shares will be payable if the note is converted into common shares by October 11, 2011.  On April 1, 2011, this Promissory Note was converted into 222,173 common shares at a price of $4.501 per share and the 25,000 bonus common shares were issued. On August 17, 2010, the Company issued a three-year convertible promissory note to an arm’s length third party, in the principal amount of $1,000,000 bearing interest at 3% and convertible into 255,484 common shares at a price of $4.286 per share.  The agreement charged finance and commitment fees of $95,000 which was paid by issuing 22,166 common shares.  These shares will be refundable to the Company if the remaining principal is not fully converted into common shares by December 9, 2011. In September 2011, the loan was converted into 233,318 shares (see note 9). On September 23, 2010 the Company completed a private placement with an arm’s length third party consisting of a three-year convertible promissory note in the principal amount of $1,000,000 bearing interest at 3% and convertible into 221,337 common shares at the price of $4.518 per share. On October 4, 2010 the Company completed a private placement with arm’s length third parties consisting of three-year convertible promissory notes in the aggregate principal amount of $1,060,000 bearing interest at 3% and convertible into 204,772 common shares at the price of $5.1765 per share. Each of the convertible debentures includes a conversion feature.  The Company determined a fair value of the financial liability by obtaining independent bank rates of 3.75% for the May 2010 debt and 4.25% for the August,  September and October 2010 debt, assuming a three-year expected life and assigned the residual value of all debts to the equity conversion feature in the amount of $126,956.  Total transaction costs for all debt agreements were $157,171 of which $5,243 was allocated to the equity component, which aggregated to $74,404 at August 31, 2012 (2011 - $101,042) and is included in share based payment reserve in shareholders’ equity.        Tanzanian Royalty Exploration CorporationNotes to the Consolidated Financial StatementsFor the Years Ended August 31, 2012 and 2011  8.Other financial assets Other financial assets are comprised of shares of publicly traded companies.  As at August 31, 2012, these investments have been measured at their fair value of $17,850 (August 31, 2011 - $29,400, August 31, 2010 - $40,425). The impact to the consolidated financial statements of this revaluation to market value for the year ended August 31, 2012 resulted in a $11,550 loss (2011 – $11,025 loss) as market values of these securities decreased (2011 – decreased) in the year. 9.Capital Stock Share CapitalThe Company’s Restated Articles of Incorporation authorize the Company to issue an unlimited number of common shares.  On November 23, 2011, the Board resolved that the Company authorize for issuance up to a maximum of 115,000,000 common shares, subject to further resolutions of the Company’s board of directors. In November 2011 the Company’s board of directors approved the adoption of a shareholder rights plan (the “Rights Plan”) designed to encourage the fair and equal treatment of shareholders in connection with any takeover bid for the outstanding common shares of the Company. The Company’s board is not aware of any specific take-over bid for the Company that has been made or is contemplated. The Rights Plan was approved by the shareholders at the annual General and Special Meeting held on March 1, 2012.     Number  Amount ($)           Balance at September 1, 2010  91,415,459  $72,855,310  Issued for cash:         Issued for private placements, net of share issue costs  2,532,119   12,912,833  Issued for prospectus, net of share issue costs  5,263,158   21,617,629  Issued pursuant to share subscriptions agreement  144,430   800,000  Issued pursuant to Restricted Shares Unit Plan  136,408   681,339  Issued on conversion of convertible debt  247,173   971,107  Issued for non-cash consideration:         Property acquisition  20,006   97,035  Balance at August 31, 2011  99,758,753   109,935,253  Issued on conversion of convertible debt  233,318   950,213  Issued for services  35,000   115,834  Issued pursuant to Restricted Share Unit Plan  182,866   1,024,793  Compensation warrants exercised  250,000   1,000,000  Reserve transferred on exercise of compensation warrants      450,765  Balance at August 31, 2012  100,459,937  $113,476,858  On September 7, 2010 the Company completed an $800,000 private placement pursuant to a subscription agreement dated August 24, 2010 with the Company’s President and CEO for 144,430 common shares at a price of $5.539 per share. On November 5, 2010 the Company completed a $4,841,600 private placement with arm’s length third parties for an aggregate 800,000 common shares at the price of $6.052 per share and an aggregate 200,000 common share purchase warrants exercisable at the price of $7.309 per share and expiring on October 20, 2012.  In addition, the Company paid a finder’s fee of 64,000 common shares at the subscription price of $6.052 per share to arm’s length third parties.  The Company allocated proceeds using the residual value method with $345,900 allocated to warrants and $4,495,700 allocated to common shares.        Tanzanian Royalty Exploration Corporation Notes to the Consolidated Financial StatementsFor the Years Ended August 31, 2012 and 2011  9.Capital Stock (continued) On November 23, 2010 the Company completed a $5,000,000 private placement with an arm’s length third party for 851,209 common shares at the price of $5.874 per share and 212,802 common share purchase warrants exercisable at the price of $7.05 per share and expiring on November 9, 2012.  In addition, the Company paid a finder’s fee of 68,097 common shares at the subscription price of $5.874 per share to arm’s length third parties.  The Company allocated proceeds using the residual value method with $340,979 allocated to warrants and $4,659,021 allocated to common shares. On January 31, 2011 the Company completed a $4,049,110 private placement with an arm’s length third party for 690,150 common shares at a price of $5.867 per share and 172,538 common share purchase warrants exercisable at the price of $6.903 per share expiring on December 22, 2012.  In addition, the Company paid a finder’s fee of 58,663 common shares at the subscription price of $5.867 per share to an arm’s length third party.  The Company allocated proceeds using the residual value method with $232,314 allocated to warrants and $3,816,796 allocated to common shares. On August 12, 2011, the Company completed an equity financing with an arm’s length third party for 5,263,158 units at a price of USD$5.70 per unit for gross proceeds of USD$30 million. Each unit consisted of one common share of the Company and one common share purchase warrant.  Each warrant entitles the holder to acquire one common share at an exercise price of USD$6.25 for a period of two years following the closing date.  In addition, the Company issued to the Underwriter 368,421 compensation options, each exercisable to acquire one common share at a price of USD$5.91 for a period of two years. On January 25, 2012 the Company issued 25,000 common shares common shares at a price of $2.619 per share respectively to an arm’s length third party in satisfaction of finder’s services provided to the Company in connection with a previous transaction.  On April 23, 2012 the Company issued 10,000 common shares at a price of $5.036 to an arm’s length third party for investor relations services. WarrantsThere were no new warrant issuances in the 2012 fiscal year. The following table summarizes the weighted average assumptions used with the Black-Scholes valuation model for the determination of the fair value of the warrants and compensation warrants granted during the year ended August 31, 2011:     Nov. 5,  Nov. 23,  Jan. 31,  Aug. 12,  Aug. 12,        2010  2010  2011  2011  2011  Total                 Compensation                    warrants     Number of warrants  200,000   212,802   172,538   5,263,158   368,421   6,216,919  Exercise price ($)  7.309   7.05   6.903  USD 6.25  USD 5.91      Expected volatility  62%  59%  52%  35%  35%     Risk-free interest rate  1.45%  1.64%  1.64%  1.12%  1.12%     Expected life (days)  715   715   690   711   711      Dividend yield  0   0   0   0   0      Fair value of warrants on grant date $345,900  $340,979  $232,314  $5,396,091  $434,798      Warrant liability Foreign currency denominated warrants (not including compensation warrants), are considered a derivative as they are not indexed solely to the entity’s own stock.  The Company’s functional currency is the Canadian dollar as such the warrants whose exercise price is denominated in US dollars have been recorded under liabilities and carried at fair value as determined by the Black-Scholes option pricing model, with changes in fair values recorded as gains or losses in the statements of comprehensive loss.        Tanzanian Royalty Exploration CorporationNotes to the Consolidated Financial StatementsFor the Years Ended August 31, 2012 and 2011  9.Capital Stock (continued) The table below shows the activity for warrant liability for the years ended August 31, 2012 and 2011:  Year ended August 31, 2012  August 31, 2011  Balance at beginning of year $5,711,250  $   Issuance of warrants  -   5,396,091  Increase in value of warrant liability  2,321,921   315,159  Transfer of warrants on re-pricing to USD (ii)  80,829   -  Balance at end of year $8,114,000  $5,711,250  The initial value of the 5,263,158 warrants issued on August 12, 2011 was recorded using the Black Scholes model, and was $5,396,091 net of issue costs. As of August 31, 2011, the warrants were revalued at $5,711,250 and the increase in value of $315,159 was recorded as a loss in the statement of comprehensive loss during the year ended August 31, 2011. During the year ended August 31, 2012, the value of the warrants increased to $8,114,000 as a result of the re-pricing of certain warrants and changes in fair value of warrants during the period.  The assumptions in valuing the warrants at August 31, 2012 included an expected volatility of 58-71%, a risk free interest rate of 1.16% and an expected life ranging from one to two years.  The increase in value of $2,321,921 was recorded as a loss in the statement of comprehensive loss. During the year, 125,000 warrants originally exercisable at CDN $7.309 were re-priced to $4.00 USD resulting in a change in classification from an equity instrument to a financial liability instrument and consequently reclassified $216,188 from warrants reserve to warrant liability. (i) Effective December 7, 2011 the exercise price of 5,263,158 common share purchase warrants was reduced from USD$6.25 to USD$4.00 and the term of the warrants was extended one year to expire August 12, 2014. In addition, if the weighted average trading price of the common shares increases to USD$6.50 after March 11, 2012, the Company will be entitled to require that the holders exercise the warrants, failing which the warrants will terminate. 368,421 compensation warrants issued under the prospectus financing have been amended in the same manner and re-priced from USD$5.91 to USD$4.00. The 5,263,158 warrants are accounted for and included in the calculation of the warrant liability. The compensation warrants continue to be classified as an equity instrument under warrants reserve and the increase in value of $183,000 from the modification of the warrants was recorded in the statement of loss and comprehensive loss for the year ended August 31, 2012. (ii) Effective January 25, 2012 the exercise price of 125,000 common share purchase warrants was reduced from CDN $7.309 to USD$4.00, and the term of the warrants was extended one year to expire October 20, 2013. In addition, if the weighted average trading price of the common shares increases to USD$6.50 after April 12, 2012, the Company will be entitled to require that the holders exercise the warrants, failing which the warrants will terminate. The warrants are held by an arm’s length investor. The result of the modification resulted in the new foreign currency denominated warrants being considered a derivative as they are not indexed solely to the entity’s own stock.  The warrants were transferred from reserve for warrants to liabilities and were accounted for and included in the calculation of the warrant liability.        Tanzanian Royalty Exploration CorporationNotes to the Consolidated Financial StatementsFor the Years Ended August 31, 2012 and 2011  9.Capital Stock (continued) Warrants and compensation options: At August 31, 2012, the following warrants and compensation options were outstanding:           Number of          Warrants Exercise price Expiry date Private placement          November 5, 2010 125,000* US$4.00 October 20, 2013 Private placement          November 5, 2010 75,000 $7.309 October 20, 2012 Private placement          November 23, 2010 212,802 $7.05 November 9, 2012 Private placement          January 31, 2011 172,538 $6.903 December 22, 2012 Equity financing          August 12, 2011 5,263,158* USD$4.00 August 12, 2014 Equity financing          compensation options          August 12, 2011 118,421 USD$4.00 August 12, 2014             Balance,          August 31, 2012 5,966,919 - - * warrants classified under Warrant Liability        Employee stock ownership plan: On May 1, 2003, the Company established a non-leveraged employee stock ownership plan (ESOP) for all eligible employees, consultants, and directors.  The Company matches 100 percent of participants’ contributions up to 5 percent of the participants’ salaries and 50 percent of participants’ contributions between 6 percent and 30 percent of the participants’ salaries.  All contributions vest immediately.  ESOP compensation expense for the year ended August 31, 2012 was $70,859 (2011 - $87,330) and is included in salaries and benefits expense. Restricted share units:  The Restricted Stock Unit Plan (RSU Plan) is intended to enhance the Company’s and its affiliates’ abilities to attract and retain highly qualified officers, directors, key employees and other persons, and to motivate such officers, directors, key employees and other persons to serve the Company and its affiliates and to expend maximum effort to improve the business results and earnings of the Company, by providing to such persons an opportunity to acquire or increase a direct proprietary interest in the operations and future success of the Company.  To this end, the RSU Plan provides for the grant of restricted stock units (RSUs).  Each RSU represents an entitlement to one common share of the Company, upon vesting.  As of November 24, 2010 the Board resolved to suspend 1,800,000 of the 2,500,000 common shares previously authorized for issuance under the RSU Plan, such that a maximum of 700,000 shares shall be authorized for issuance under the RSU Plan, until such suspension may be lifted or further amended.  RSU awards may, but need not, be subject to performance incentives to reward attainment of annual or long-term performance goals in accordance with the terms of the RSU Plan. Any such performance goals are specified in the award agreement.        Tanzanian Royalty Exploration CorporationNotes to the Consolidated Financial StatementsFor the Years Ended August 31, 2012 and 2011  9.Capital Stock (continued) The Board of Directors implemented the RSU Plan under which officers, directors, employees and others are compensated for their services to the Company.  Annual compensation for outside directors is $68,750 per year, plus $6,875 per year for serving on Committees, plus $3,437 per year for serving as Chair of a Committee. On April 11, 2012 the board approved that at the election of each individual director, up to one half of the annual compensation may be received in cash, paid quarterly.  The remainder of the director’s annual compensation (at least one half, and up to 100%) will be awarded as RSUs in accordance with the terms of the RSU Plan and shall vest within a minimum of one (1) year and a maximum of three (3) years, at the election of the director, subject to the conditions of the RSU Plan with respect to earlier vesting.  In 2012 outside directors had the option to elect to receive 100% of their compensation in RSUs.  If 100% compensation in RSUs elected, the compensation on which the number of RSUs granted in excess of the required one half shall be increased by 20%.  The Company uses the fair value method to recognize the obligation and compensation expense associated with the RSU’s. The fair value of RSU’s issued is determined on the grant date based on the market price of the common shares on the grant date multiplied by the number of RSUs granted. The fair value is expensed over the vesting term. Upon redemption of the RSU the carrying amount is recorded as an increase in common share capital and a reduction in the share based payment reserve. The Company has a RSU Plan which allows the Company to issue RSU’s which are redeemable for the issue of common shares at prevailing market prices on the date of the RSU grant. The aggregate number of RSU’s outstanding is limited to a maximum of ten percent of the outstanding common shares. The Company has granted RSU’s to officers and key employees. Of the 700,000 shares authorized for issuance under the Plan, 632,053 shares have been issued as at August 31, 2012. Total share-based compensation expense related to the issue of RSUs was $1,283,750 for the year ended August 31, 2012 (2011 - $875,461). The following table summarizes changes in the number of RSU’s outstanding:           Weighted average      fair value at issue Number of RSU’s   date Balance, September 1, 2010332,446 $ 4.62 Granted270,048 $ 6.34 Redeemed for common shares(136,408)$ 4.99 Forfeited - unvested(25,154)$ 4.69 Balance, August 31, 2011440,932 $ 5.55 Granted296,926 $ 4.83 Redeemed for common shares(182,866) $ 5.60 Forfeited - unvested(108,745) $ 5.39 Balance, August 31, 2012446,247 $ 5.09        Tanzanian Royalty Exploration CorporationNotes to the Consolidated Financial StatementsFor the Years Ended August 31, 2012 and 2011  10. Reserve for warrants            August 31,  August 31,  Year ended 2012  2011  Balance at beginning of year $1,353,990  $-  Warrants issued  -   1,353,990  Transfer of warrants to warrant liability  (216,188)  -  Modification of warrants  183,000   -  Transfer on exercise of compensation warrants  (450,765)  -  Balance at end of year $870,037  $1,353,990  11. Reserve for share based payments            August 31,  August 31,  Year ended 2012  2011  Balance at beginning of year $706,988  $476,205  Shares issued pursuant to RSU plan  (1,024,793)  (681,339) Issued on conversion of convertible debt  (30,638)  (20,681) Equity conversion value for convertible debt  -   70,404  RSU shares forfeited  (264,528)  (13,062) Share based compensation  1,283,750   875,461  Balance at end of year $670,779  $706,988  12.  Related party transactions and key management compensation Related parties include the Board of Directors and officers, close family members and enterprises that are controlled by these individuals as well as certain consultants performing similar functions. Related party transactions conducted in the normal course of operations are measured at the exchange value (the amount established and agreed to by the related parties). (a) Tanzanian Royalty Exploration Corporation entered into the following transactions with related parties:  Year ended August 31,Notes  2012  2011  Legal services(i)  $553,949  $797,863  Director compensation(ii)  $365,049  $461,484  Chairman and COO(iii)  USD$ 8,800  USD$ 9,600  Technical Committee(iv)  $130,160  $156,119  (i) The Company engages a legal firm for professional services in which one of the Company’s directors is a partner.  During the year ended August 31, 2012, the legal expense charged by the firm was $553,949 (2011 - $797,146), of which $140,245 remains payable at year end (2011 - $419,032). (ii) During the year ended August 31, 2012, $365,049 (2011 - $461,484) was paid or payable by the Company to directors for serving on the Board and/or related Committees. (iii) During the year ended August 31, 2012, USD$8,800 (2011 - USD$9,600) was paid to a company associated with the Company’s Chairman and COO for office rental. (iv) During the year ended August 31, 2012, $130,160 (2011 - $156,119) was paid or payable by the Company to directors as incremental fees for serving on the Company’s Technical Committee.        Tanzanian Royalty Exploration CorporationNotes to the Consolidated Financial StatementsFor the Years Ended August 31, 2012 and 2011  12.  Related party transactions and key management compensation, (continued) (b) Remuneration of Directors and key management personnel (being the Company’s Chief Executive Officer, Chief Financial Officer and Chief Operating Officer), other than consulting fees, of the Company was as follows:  Year ended August 31,    2012     2011     Salaries  Share  Salaries  Share     and  based  and  based    benefits (1) payments (3)  benefits (1)  payments (3)  Management $377,230  $617,449  $217,394  $114,554  Directors  75,601   289,448   20,701   440,783  Total $452,831  $906,897  $238,095  $555,337  (1) Salaries and benefits include director fees. The board of directors do not have employment or service contracts with the Company. Directors are entitled to director fees and RSU’s for their services and officers are entitled to cash remuneration and RSU’s for their services. (2) Compensation shares may carry restrictive legends prohibiting selling within certain time frames up to a year.(3) All RSU share based compensation is based on the accounting expense recorded in the period. On September 7, 2010 the Company completed an $800,000 private placement pursuant to a subscription agreement dated August 24, 2010 with the Company’s President and CEO for 144,430 common shares at a price of $5.539 per share. On February 1, 2011 the Audit Committee approved a loan agreement (the Loan Agreement) with Joseph Kahama (Kahama), the Chairman and COO (Tanzania) of the Company, providing for a six month loan from the Company to Kahama in the principal amount of USD$100,000 on arm’s length commercial terms, bearing interest at the prime rate charged by the Company’s bankers, determined monthly (the Loan).  Mr. Kahama repaid the loan principal plus interest on August 8, 2011.  Upon further review, the Board has determined that the Kahama loan was inadvertently not in compliance with Sarbanes-Oxley.  As a result, the Board has reviewed its corporate governance procedures with US counsel and has taken corrective action. At August 31, 2012, the Company has a receivable of $22,977 (2011 - $7,214) from an organization associated with the Company’s President and CEO.        Tanzanian Royalty Exploration CorporationNotes to the Consolidated Financial StatementsFor the Years Ended August 31, 2012 and 2011  13. Management of Capital The Company's objective when managing capital is to obtain adequate levels of funding to support its exploration activities, to obtain corporate and administrative functions necessary to support organizational functioning and obtain sufficient funding to further the identification and development of precious metals deposits. The Company manages its capital structure and makes adjustments to it, based on the funds available to the Company, in order to support the acquisition, exploration and development of mineral properties. The Board of Directors does not establish quantitative return on capital criteria for management, but rather relies on the expertise of the Company's management to sustain future development of the business. The Company defines capital to include its shareholders’ equity. In order to carry out the planned exploration and pay for administrative costs, the Company will spend its existing working capital and raise additional amounts as needed. The Company will continue to assess new properties and seek to acquire an interest in additional properties if it feels there is sufficient geologic or economic potential and if it has adequate financial resources to do so. Management reviews its capital management approach on an ongoing basis and believes that this approach, given the relative size of the Company, is reasonable. There were no changes in the Company's approach to capital management during the year ended August 31, 2012. The Company is not subject to externally imposed capital requirements. The Company considers its capital to be shareholders’ equity, which is comprised of share capital, reserves, and deficit, which as at August 31, 2012 totaled $50,750,851 (August 31, 2011 - $56,491,892). The Company raises capital, as necessary, to meet its needs and take advantage of perceived opportunities and, therefore, does not have a numeric target for its capital structure.  Funds are primarily secured through equity capital raised by way of private placements.  There can be no assurance that the Company will be able to continue raising equity capital in this manner. Management reviews its capital management approach on an ongoing basis and believes that this approach, given the relative size of the Company, is reasonable. The Company invests all capital that is surplus to its immediate operational needs in short term, liquid and highly rated financial instruments, such as cash, and short term guarantee deposits, all held with major Canadian financial institutions. 14. Financial Instruments Fair Value of Financial InstrumentsThe Company designated its other financial assets and warrant liability as FVTPL, which are measured at fair value.  Fair value of other financial assets is determined based on quoted market prices and is categorized as Level 1 measurement.  Fair value of warrant liability is categorized as Level 2 measurement as it is calculated based on observable market inputs.  Trade and other receivables and cash and cash equivalents are classified as loans and receivables, which are measured at amortized cost.  Trade and other payables and convertible debt are classified as other financial liabilities, which are measured at amortized cost.  Fair value of trade and other payables and convertible debt are determined from transaction values that are not based on observable market data.  The carrying value of the Company’s cash and cash equivalents, trade and other receivables, trade and other payables approximate their fair value due to the relatively short term nature of these instruments. The Company’s convertible debt fair value is based on market interest rate.  As at August 31, 2012, and 2011 the fair value of the convertible debt agreements did not differ materially from their carrying value.        Tanzanian Royalty Exploration CorporationNotes to the Consolidated Financial StatementsFor the Years Ended August 31, 2012 and 2011  14. Financial Instruments (continued) Fair value estimates are made at a specific point in time, based on relevant market information and information about financial instruments.  These estimates are subject to and involve uncertainties and matters of significant judgment, therefore cannot be determined with precision.  Changes in assumptions could significantly affect the estimates. A summary of the Company's risk exposures as they relate to financial instruments are reflected below: Credit RiskCredit risk is the risk of an unexpected loss if a third party to a financial instrument fails to meet its contractual obligations.  The Company is subject to credit risk on the cash balances at the bank, its short-term bank investments and accounts and other receivables and the carrying value of those accounts represent the Company’s maximum exposure to credit risk.  The Company’s cash and cash equivalents and short-term bank investments are with Schedule 1 banks or equivalents.  The accounts and other receivables consist of GST/HST and VAT receivable from the various government agencies and amounts due from related parties.  The Company has not recorded an impairment or allowance for credit risk at August 31, 2012, August 31, 2011 or September 1, 2010. Interest Rate RiskInterest rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market interest rate.  The Company’s bank accounts earn interest income at variable rates.  The Company’s future interest income is exposed to changes in short-term rates.  As at August 31, 2012, a 1% increase/decrease in interest rates would decrease/increase net loss for the period by approximately $200,000 (2011 - $324,000). Liquidity RiskThe Company’s approach to managing liquidity risk is to ensure that it will have sufficient liquidity to meet liabilities when due.  As at August 31, 2012, the Company had current assets of $20,483,824 (August 31, 2011 - $32,922,378) and current liabilities of $2,318,393 (August 31, 2011 - $2,471,199). All of the Company’s trade payables and receivables have contractual maturities of less than 90 days and are subject to normal trade terms.  Current working capital of the Company is $18,165,431 (August 31, 2011 - $30,451,179). Foreign Currency Risk The Company is exposed to the financial risk related to the fluctuation of foreign exchange rates.  The Company has offices in Canada, USA, and Tanzania, but holds cash mainly in Canadian and United States currencies.  A significant change in the currency exchange rates between the Canadian dollar relative to US dollar and Tanzanian shillings could have an effect on the Company’s results of operations, financial position, or cash flows.  At August 31, 2012, the Company had no hedging agreements in place with respect to foreign exchange rates.  As a majority of the funds of the Company are held in Canadian currencies, the foreign currency risk associated with US dollar and Tanzanian Shilling financial instruments is not considered significant at August 31, 2012.        Tanzanian Royalty Exploration CorporationNotes to the Consolidated Financial StatementsFor the Years Ended August 31, 2012 and 2011  15. Prepaid expenses             August 31, 2012  August 31, 2011  September 1, 2010 Insurance $41,525  $29,061  $13,144 Listing fees  23,806   41,921   32,749 Other  22,345   12,873   14,469 Total prepaid expenses $87,676  $83,855  $60,362 16. Trade and other receivables The Company’s trade and other receivables arise from two main sources: trade receivables due from related parties and harmonized services tax (“HST”) and value added tax (“VAT”) receivable from government taxation authorities. These are broken down as follows:             August 31, 2012  August 31, 2011  September 1,          2010 Receivable from related parties $23,315  $33,610  $43,507 HST and VAT Receivable  38,824   118,716   18,287 Other  9,086   4,808   17,279 Total Trade and Other Receivables $71,225  $157,134  $79,073  Below is an aged analysis of the Company’s trade and other receivables:             August 31, 2012  August 31, 2011  September 1,          2010 Less than 1 month $4,034  $4,810  $17,279 1 to 3 months  64,016   126,986   61,794 Over 3 months  3,175   25,338     Total Trade and Other Receivables $71,225  $157,134  $79,073  At August 31, 2012, the Company anticipates full recovery of these amounts and therefore no impairment has been recorded against these receivables. The credit risk on the receivables has been further discussed in Note 14. The Company holds no collateral for any receivable amounts outstanding as at August 31, 2012.        Tanzanian Royalty Exploration CorporationNotes to the Consolidated Financial StatementsFor the Years Ended August 31, 2012 and 2011  17. Trade, other payables and accrued liabilities Trade and other payables of the Company are principally comprised of amounts outstanding for trade purchases relating to exploration activities, amounts payable for financing activities and payroll liabilities. The usual credit period taken for trade purchases is between 30 to 90 days. The following is an aged analysis of the trade, other payables and accrued liabilities:               August 31, 2012  August 31, 2011  September 1,           2010  Less than 1 month $921,893  $1,235,600  $310,398  1 to 3 months  1,378,486   741,360   204,238  Over 3 months  18,014   494,239   106,159  Total Trade, Other Payables             and Accrued Liabilities $2,318,393  $2,471,199  $620,795  18. Inventory Inventory consists of supplies for the Company’s drilling rig to be consumed during the course of exploration development and operations.  Cost represents the delivered price of the item.  The following is a breakdown of items in inventory:               August 31, 2012  August 31, 2011  September 1,           2010  Replacement parts for drill $186,296  $167,639  $171,897  Other  62,099   55,879   57,299  Total Inventory $248,395  $223,518  $229,196  19. Cash and cash equivalents Cash and cash equivalents total $20,058,678 (August 31, 2011 $32,428,471, August 31, 2010 -$1,325,708), consisting of cash on deposit with banks in general minimum interest bearing accounts totalling $2,027,295 (August 31, 2011 - $6,038,471), and Government investment certificates consisting of interest-generating money-market accounts of $18,031,383 (August 31, 2011 - $26,390,000).  This interest-generating government investment certificate is cashable at any time and the Company expects to convert this into cash on an as needed basis.        Tanzanian Royalty Exploration CorporationNotes to the Consolidated Financial StatementsFor the Years Ended August 31, 2012 and 2011  20. Taxes The Company’s provision for income taxes differs from the amount computed by applying the combined federal and provincial income tax rates to income (loss) before income taxes as a result of the following:          2012  2011 Combined basic Canadian federal and      provincial statutory income tax rates      including surtaxes  25.8%  28.9%Statutory income tax rates applied to        accounting income $(2,296,000) $(3,217,000)Increase (decrease) in provision for income        taxes:        Foreign tax rates different from statutory rate  121,000   357,000 Permanent differences and other items  585,000   655,000 Benefit of tax losses not recognized  1,590,000   2,205,000 Provision for income taxes $-  $-  The enacted tax rates in Canada of 25.8% (28.9% - 2011) and Tanzania of 30% (30% - 2011) where the company operates are applied in the tax provision calculation.  The combined Canadian federal and provincial statutory rate has decreased from the prior period due to a scheduled enacted rate reduction. Provision for income taxes consists of the following:          2012  2011 Current income taxes (recovery) $-  $- Deferred income taxes (recovery)  -   -    $-  $-  The following table reflects the Company’s deferred income tax assets (liabilities): The tax effects of significant temporary differences which would comprise tax assets and liabilities at August 31, 2012 and 2011 are as follows:   August 31,  August 31,  September 1,    2012  2011  2010 Non capital losses carried forward $18,000  $-  $5,000 Deferred income tax assets $18,000  $-  $5,000 Share issuance costs  (18,000)  -   (5,000)Net deferred income tax assets (liabilities) $-  $-  $          Tanzanian Royalty Exploration CorporationNotes to the Consolidated Financial StatementsFor the Years Ended August 31, 2012 and 2011  20. Taxes (continued) The following temporary differences have not been reflected in the Company’s consolidated financial statements:   August 31,  August 31,  September 1,    2012  2011  2010 Non capital losses carried forward $34,526,000  $29,141,000  $21,884,000 Tangible capital assets  271,000   260,000   252,000 Capital losses carried forward  127,000   127,000   127,000 Share issuance costs  -   78,000   -    $34,924,000  $29,606,000  $22,263,000  At August 31, 2012, the Company has Tanzanian non-capital losses of $20,485,000, which may be carried forward and applied against Tanzania taxable income of future years.  The non-capital loss may be carried forward without limitation. At August 31, 2012, the Company has non-capital losses of $14,111,000, which may be carried forward and applied against Canadian taxable income of future years.   The non-capital losses have expiry dates as follows:    2014 $914,000 2015  997,000 2026  1,711,000 2027  1,388,000 2028  1,333,000 2029  1,587,000 2030  1,427,000 2031  2,378,000 2032  2,376,000    $14,111,000  At August 31, 2012, $nil (2011 - $nil) was recognized as a deferred tax liability for taxes that would be payable on the unremitted earnings of certain of the Company’s subsidiaries as the Company has determined that undistributed profits of its subsidiaries will not be distributed in the foreseeable future. 21. Segmented information  Operating Segments At August 31, 2012 the Company’s operations comprise a single reporting operating segment engaged in mineral exploration in Tanzania.  The Company’s corporate division only earns interest revenue that is considered incidental to the activities of the Company and therefore does not meet the definition of an operating segment as defined in IFRS 8 ‘Operating Segments’. As the operations comprise a single reporting segment, amounts disclosed in the consolidated financial statements also represent operating segment amounts. An operating segment is defined as a component of the Company: ●    that engages in business activities from which it may earn revenues and incur expenses; ●    whose operating results are reviewed regularly by the entity’s chief operating decision maker; and ●    for which discrete financial information is available.        Tanzanian Royalty Exploration CorporationNotes to the Consolidated Financial StatementsFor the Years Ended August 31, 2012 and 2011  21. Segmented information (continued) Geographic Segments The Company is in the business of mineral exploration and production in the country of Tanzania. As such, management has organized the Company’s reportable segments by geographic area. The Tanzanian segment is responsible for that country’s mineral exploration and production activities while the Canadian segment manages corporate head office activities. Information concerning TREC’s reportable segments is as follows:    August 31,  August 31,    2012  2011 Consolidated net loss      Canada $(6,088,262) $(4,162,588)Tanzania  (2,809,581)  (6,969,783)   $(8,897,843) $(11,132,371)Identifiable assets        Canada $20,137,766  $39,500,639 Tanzania  43,118,764   28,131,741    $63,256,530  $67,632,380 22. Commitments In addition to the property payments committed to by the Company to maintain options in certain prospecting and mining option agreements (note 5), the Company is committed to rental payments of approximately $37,685 for premises in 2013. 23. Comparative figures Certain comparative figures have been reclassified to conform to the current year’s presentation. 24. Subsequent event Pursuant to the private placement completed on September 23, 2010, the Company received notice from an arm’s length third party to convert its Promissory Note in the principal amount of $1,000,000 bearing interest at 3% and convertible into 221,337 common shares at a price of $4.518 per share, and 221,337 shares were issued on October 17, 2012.