79 On 17 March 20X7, Newthorpe’s managing director was dismissed for gross misconduct. It was decided that the managing director's salary should stop from that date, and that no redundancy or compensation payments should be made. The managing director has claimed unfair dismissal and is taking legal action against the company to obtain compensation for loss of his employment. The managing director says he has a service contract with the company which would entitle him to two years' salary at the date of dismissal. The directors believe that there is a 35% chance of the managing director succeeding in his claim. The financial statements for the year ended 30 April 20X7 record the resignation of the director. However, they do not mention his dismissal and no provision for any damages has been included in the financial statements. Which of the following options correctly summarises the correct accounting treatment for the legal claim made by the managing director?