What should be done if a long-term contract indicates an expected loss upon completion?

When a long-term contract indicates an expected loss upon completion, the appropriate action is to recognize that loss in the current period. This treatment aligns with the principle of conservatism in accounting, which encourages recognizing potential losses as soon as they are anticipated.

Under the guidance provided by accounting standards, when the estimated total costs of the contract exceed the estimated total revenues, a loss must be recognized to ensure that financial statements reflect the economic reality of the situation. Reporting the loss immediately helps to provide stakeholders with an accurate picture of the company's financial health and performance, as it accounts for the anticipated financial impact of the contract.

Other methods outlined, such as the percentage-of-completion method or cost-recovery method, would not appropriately reflect the situation where a loss is assured. These methods focus on revenue recognition based on completion and recovery rather than immediate recognition of losses, which is critical in this case to maintain transparency in financial reporting.