What would have been the effect on the statement of financial position if the inventories had been sold on 7 March for £5,000 rather than £11,000?

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

Stellar Ltd Statement of financial position as at 7 March

ASSETS	£
Cash at bank (20,000 + 5,000)	25,000
Office Furniture	15,000
Inventories (11,000 – 11,000)	–
Total assets	40,000

EQUITY AND LIABILITIES	£
Equity (28,000 + (5,000 – 11,000))	22,000
Liabilities – borrowing	12,000
Liabilities – trade payable	6,000
Total equity and liabilities	40,000

As we can see, the inventories (£11,000) will disappear from the statement of financial position, but the cash at bank will rise by only £5,000. 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.