Answer
It would be unethical to ignore recognition of the loss now if a loss is expected to occur when the purchase is effected.
Work Step by Step
Accounting standards require that when a contracted price is in excess of market, as it is in this case because the market price is 5,000,000 and the contract price is $6,000,000, and it is expected that losses will occur when the purchase is effected, losses should be recognized in the period during which such declines in market prices take place.
