What would have been the effect on the statement of financial position if the inventories had been sold on 7 March for £5,000 rather than £7,500?

The statement of financial position on 7 March would then have been:

Gamma Goods Statement of financial position as at 7 March

ASSETS	£
Cash at bank (22,000 + 5,000)	27,000
Office Equipment	9,000
Inventories (7,500 – 7,500)	–
Total assets	36,000

EQUITY AND LIABILITIES	£
Equity (19,000 + (5,000 – 7,500))	16,500
Liabilities – borrowing	12,000
Liabilities – trade payable	7,500
Total equity and liabilities	36,000

As we can see, the inventories (£7,500) will disappear from the statement of financial position, but the cash at bank will rise by only £5,000. This will mean a net reduction in assets of £2,500. This reduction represents a loss arising from trading and will be reflected in a reduction in the equity of the owners.