What would have been the effect on the statement of financial position if the inventories had been sold on 7 March for £3,500 rather than £7,000?

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

Sigma Corporation Statement of financial position as at 7 March

ASSETS	£
Cash at bank (30,000 + 3,500)	33,500
Furniture	13,000
Inventories (7,000 – 7,000)	–
Total assets	46,500

EQUITY AND LIABILITIES	£
Equity (27,000 + (3,500 – 7,000))	23,500
Liabilities – borrowing	16,000
Liabilities – trade payable	7,000
Total equity and liabilities	46,500

As we can see, the inventories (£7,000) will disappear from the statement of financial position, but the cash at bank will rise by only £3,500. This will mean a net reduction in assets of £3,500. This reduction represents a loss arising from trading and will be reflected in a reduction in the equity of the owners.