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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 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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