The Bat Group operates in the Consumer Electronics and Appliances industry. On 1 January 2022 Bat Co disposed of one of its subsidiaries, Cat Co, for cash of $63m. Cat Co manufactures household appliances and was sold because the Bat Group wanted to exit this particular sector.

Extracts from the consolidated financial statements of the Bat Group for the years ended 31 December 2021 and 2022 are as follows:

Statements of profit or loss	2022	2021
	$000	$000
Revenue	150,000	170,000
Cost of Sales	(71,400)	(107,700)
Gross Profit	76,050	75,900
Operating expenses	(50,550)	(56,100)
Profit from operations	25,500	19,800
Finance Costs	(4,800)	(8,250)
Profit before tax	20,700	11,550
Statement of financial position
Inventories	5,000	15,000
Cash	23,550	10,950

The following information is relevant;

The accounting assistant has not accounted for Cat Co as a discontinued operation because the disposal occurred on 1 January 2022. No figures form Cat Co have been included in the 2022 financial statements extracts above. The proceeds from the disposal have been recorded in cash, with all net assets and goodwill derecognised. The balancing figure was held in a suspense account.

Bat Co acquired 100% of Cat Co on 1 January 2016 and goodwill was calculated as $9m. The goodwill had been impaired 40% in 2020. The net assets at 1 January 2022 were $50m.

As part of the sales agreement, the Bat group will receive an annual fee of $3m for the use of the Cat Co brand. The 2022 annual fee has been included in the Bat group revenue for the year ended 31 December 2022.

Results obtained from Cat Cos individual published financial statements show the following key information:

	2022	2021
	$000	$000
Revenue	48,400	50,000
Gross Profit	18,200	18,900
Profit form operations	12,000	9,000

Prior to the disposal Cat Co used to use some property belonging to the Bat group. Following the disposal, the Bat group moved its electronics division into this property.

Previously the electronics division had leased external facilities for $3.74m a year. At 1 January 2022 the lease had ten years remaining. To exist the lease, the Bat group made a one-off payment of $4.5m to the lessor and recorded it as operating expenses.

The Bat group acquires raw materials form overseas. In 2021 the group recorded foreign exchange gains of $4.5m, and in 2022 the group made a foreign exchange loss of $1.5m. Both items were recognised within operating expenses.

Required:

Calculate the gain on disposal of Cat Co that would need to be included in the consolidated statement of profit or loss for the Bat Group for the year ended 31 December 2022. (6 marks) (Show all workings)

Explain whether or not the disposal of Cat Co is likely to constitute a discontinued operation, and the correct accounting treatment for this. (3 marks)

Calculate the following ratios, for the Bat Group for 2022 and 2021(Show all workings):

-Gross profit margin (3 marks)

- Operating profit margin (3 marks)

- Interest cover (3 marks)

- Inventory turnover days (3 marks)

Analyse the Bat Group for the year ended 31 December 2022 compared to the year ended 31 December 2021 based on the ratios mentioned above. (State one possible reason for the change in each ratio) (12 marks)

Briefly comment on the effect that note 5 would have on Operating expenses and Finance Cost for the Group. (2 marks)

Based on note 6, briefly comment the group exposure to foreign currency risk. (2 marks)

Give your overall conclusion for the Bat Group since the disposal. (3 marks)