Khaya limited"s customer (Lenn) began legal proceedings against Khaya during the year ended 30 August 2021 against Khaya. Lenn claimed that the cakes bought and delivered to them on their Christmas party Celebration were not prepared properly as they caused 95% of the employees seriously sick.Khaya Limited has obtained advice from its legal practitioner who advised them that the legal action was not likely to be successful.

Required

Advice the Directors of Khaya Limited how they should treat the above circumstance in their financial statements as at 31 August 2021. Support your answer.