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 £5,500?

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

Lunar Inc Statement of financial position as at 7 March

ASSETS	£
Cash at bank (17,000 + 3,000)	20,000
Motor Vehicle	7,000
Inventories (5,500 – 5,500)	–
Total assets	27,000

EQUITY AND LIABILITIES	£
Equity (23,000 + (3,000 – 5,500))	20,500
Liabilities – borrowing	3,000
Liabilities – trade payable	3,500
Total equity and liabilities	27,000

As we can see, the inventories (£5,500) 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 £2,500. This reduction represents a loss arising from trading and will be reflected in a reduction in the equity of the owners.