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 £6,000?

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

Luna Enterprises Statement of financial position as at 7 March

ASSETS	£
Cash at bank (16,000 + 3,500)	19,500
Machinery	8,500
Inventories (6,000 – 6,000)	–
Total assets	28,000

EQUITY AND LIABILITIES	£
Equity (21,000 + (3,500 – 6,000))	18,500
Liabilities – borrowing	6,000
Liabilities – trade payable	3,500
Total equity and liabilities	28,000

As we can see, the inventories (£6,000) 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 £2,500. This reduction represents a loss arising from trading and will be reflected in a reduction in the equity of the owners.