What would have been the effect on the statement of financial position if the inventories had been sold on 7 March for £2,000 rather than £4,000?

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

Galaxy Corp Statement of financial position as at 7 March

ASSETS	£
Cash at bank (14,000 + 2,000)	16,000
Office Equipment	6,000
Inventories (4,000 – 4,000)	–
Total assets	22,000

EQUITY AND LIABILITIES	£
Equity (16,000 + (2,000 – 4,000))	14,000
Liabilities – borrowing	5,000
Liabilities – trade payable	3,000
Total equity and liabilities	22,000

As we can see, the inventories (£4,000) will disappear from the statement of financial position, but the cash at bank will rise by only £2,000. This will mean a net reduction in assets of £2,000. This reduction represents a loss arising from trading and will be reflected in a reduction in the equity of the owners.