Reference no: EM132735184

In January 20X1, Orion invested in a business called Dinner for Eight Lid. (DFEL) which had been started by Gagan Singh, a local restaurant owner. DFEL holds weekly dinners where eight clients are brought together for a meal at Gagan's restaurant. Rico wanted to invest in the business as he sees it as a good opportunity to bring together clients from Orion. Gagan invested $8,500 in initial capital to start the business. Orion subsequently invested $1,500 and holds a 15% ownership interest, while Gagan now holds the remaining 85%.

• Rico was pleased that he had the business sense to make sure a contract was drawn up by a lawyer, ensuring that the terms of this business relationship were clearly defined. Rico is a board member of DFEL and plans to become more involved in the business than he has been so far. Gagan told him that he appreciates Rico's increased involvement in decision making because Rico truly understands the group dynamics. Rico has recorded his $1,500 investment as an "other asset" for now because he is not sure what to do with it. He has not recorded any other amounts in Orion's accounts relating to DFEL.

• Gagan has been doing the billing and payment of expenses relating to the dinner parties. For 20X1, DFEL earned profits of $25,000 and did not pay any dividends.

Problem 1: Which section of ASPE should be applied for this issue.