What would have been the effect on the statement of financial position if the inventories had been sold on 7 March for £2,500 rather than £7,500?

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

Starry Co. Statement of financial position as at 7 March

ASSETS	£
Cash at bank (21,000 + 2,500)	23,500
Office Equipment	8,500
Inventories (7,500 – 7,500)	–
Total assets	32,000

EQUITY AND LIABILITIES	£
Equity (25,000 + (2,500 – 7,500))	20,000
Liabilities – borrowing	8,000
Liabilities – trade payable	4,000
Total equity and liabilities	32,000

As we can see, the inventories (£7,500) will disappear from the statement of financial position, but the cash at bank will rise by only £2,500. This will mean a net reduction in assets of £5,000. This reduction represents a loss arising from trading and will be reflected in a reduction in the equity of the owners.