Question
What would have been the effect on the statement of financial position if the inventories had been sold on 7 March for 2,000 rather than
What would have been the effect on the statement of financial position if the inventories had been sold on 7 March for £2,000 rather than £4,500?
The statement of financial position on 7 March would then have been:
Cosmos Traders Statement of financial position as at 7 March
ASSETS | £ |
Cash at bank (15,000 + 2,000) | 17,000 |
Equipment | 8,000 |
Inventories (4,500 – 4,500) | – |
Total assets | 25,000 |
EQUITY AND LIABILITIES | £ |
Equity (20,000 + (2,000 – 4,500)) | 17,500 |
Liabilities – borrowing | 5,000 |
Liabilities – trade payable | 2,500 |
Total equity and liabilities | 25,000 |
As we can see, the inventories (£4,500) will disappear from the statement of financial position, but the cash at bank will rise by only £2,000. 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.
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