E$21-3$

Gadgets Limited is a company involved in the retailing of electronic goods. The following

are extracts from the financial statements, showing the current assets and current liabilities

sections of the statement of financial position as well as the trading section of the

statement of profit or loss.

GADGETS LIMITED

EXTRACT FROM STATEMENT OF FINANCIAL POSITION

AT $28$ FEBRUARY $20$X$1$

GADGETS LIMITED

EXTRACT FROM STATEMENT OF PROFIT OR LOSS

FOR YEAR ENDED $28$ FEBRUARY $20$X$1$

Goods purchased on credit during the year ended $28$ February $20$X$1$ amounted to

C$3502000.$

You are required to:

a$.$ Briefly discuss what you understand by:

Inventory holding period

Accounts receivable collection period

Accounts payable payment period

Working capital cycle

b$.$ Calculate the following ratios for the $20$X$1$ year only:

Current ratio

Acid test ratio

Inventory holding period

Accounts receivable collection period

Accounts payable payment period

c$.$ Briefly analyse the above ratios and comment on the short$-$term liquidity position of

Gadgets Limited.