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.