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 £9,500?

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

Astro Products Statement of financial position as at 7 March

ASSETS	£
Cash at bank (19,000 + 3,500)	22,500
Furniture	6,500
Inventories (9,500 – 9,500)	–
Total assets	29,000

EQUITY AND LIABILITIES	£
Equity (22,000 + (3,500 – 9,500))	16,000
Liabilities – borrowing	7,000
Liabilities – trade payable	6,000
Total equity and liabilities	29,000

As we can see, the inventories (£9,500) 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 £6,000. This reduction represents a loss arising from trading and will be reflected in a reduction in the equity of the owners.