Thank you but if a child asks me why "this" is converted to "it", how can I explain it in an easy and a simple way?
The two speakers are in different relation to the cat. The first says, "Is this a cat?", indicating that the cat is in proximity to the speaker. That's not necessarily the case to the second speaker.
Note this dialogue:
A: "Is this a cat that I have in my arms?"
B: "Yes, that is a cat that you have in your arms."
I've embolded the words that change when the speaker changes.
There is also another reason for a change. Consider this:
"This is a cat. It has four legs." The demonstrative pronoun "this" has identified the object in question. After that, you can refer to it as "it".
Somehow, I don't think many children are going to be asking about this. They just accept it. It is grown up learners of English who ask these questions.