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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 4,000 rather than

What would have been the effect on the statement of financial position if the inventories had been sold on 7 March for £4,000 rather than £7,000?

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

Cosmic Enterprises Statement of financial position as at 7 March

ASSETS

£

Cash at bank (19,000 + 4,000)

23,000

Machinery

10,000

Inventories (7,000 – 7,000)

Total assets

33,000

EQUITY AND LIABILITIES

£

Equity (24,000 + (4,000 – 7,000))

21,000

Liabilities – borrowing

7,000

Liabilities – trade payable

5,000

Total equity and liabilities

33,000

As we can see, the inventories (£7,000) will disappear from the statement of financial position, but the cash at bank will rise by only £4,000. This will mean a net reduction in assets of £3,000. 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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