What would have been the effect on the statement of financial position if the inventories had been sold on 7 March for £3,000 rather than £9,000?

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

Epsilon Services Statement of financial position as at 7 March

ASSETS	£
Cash at bank (26,000 + 3,000)	29,000
Motor Vehicle	15,000
Inventories (9,000 – 9,000)	–
Total assets	44,000

EQUITY AND LIABILITIES	£
Equity (25,000 + (3,000 – 9,000))	19,000
Liabilities – borrowing	18,000
Liabilities – trade payable	7,000
Total equity and liabilities	44,000

As we can see, the inventories (£9,000) will disappear from the statement of financial position, but the cash at bank will rise by only £3,000. This will mean a net reduction in assets of £6,000. This reduction represents a loss arising from trading and will be reflected in a reduction in the equity of the owners.