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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

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.

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