Correct Option: C. credited to asset revaluation account Detailed Explanation: When a partnership admits a new member, it often requires a revaluation of the partnership's assets to reflect their current market value. In this case, the land and building were revalued from N30,000 to N70,000, resulting in an increase of N40,000. Step-by-Step Breakdown:

1. Understanding Revaluation:
2. Revaluation is the process of adjusting the book value of an asset to its fair market value. This is important for accurately reflecting the financial position of the partnership, especially when new partners are admitted.
3. Calculating the Increase:
4. The original value of the land and building: N30,000
5. New value after revaluation: N70,000
6. Increase in value: N70,000 - N30,000 = N40,000
7. Accounting Treatment:
8. The increase in the value of the asset (N40,000) does not go directly to the asset account (land and building) but instead is recorded in a separate account called the Asset Revaluation Account. This is because the increase in value is not realized as cash or income yet; it is merely an adjustment to the asset's value on the balance sheet.
9. Journal Entry:
10. The journal entry to record this revaluation would be:
    • Debit: Land and Building Account N70,000 (to reflect the new value)
    • Credit: Asset Revaluation Account N40,000 (to record the increase in value)
    • Credit: Land and Building Account N30,000 (to remove the old value)
11. Why Option C is Correct:
12. The N40,000 increase is credited to the Asset Revaluation Account because this account is used to track increases in asset values due to revaluation. This account is part of equity and reflects the unrealized gains from the revaluation of assets.

Why Other Options are Incorrect:

• Option A: Credited to land and building account:
• This option is incorrect because the increase in value should not be directly credited to the land and building account. Instead, the land and building account is debited to reflect the new total value, while the increase is recorded in the asset revaluation account.
• Option B: Debited to asset revaluation account:
• This option is incorrect because the asset revaluation account is credited, not debited. A debit would imply a decrease in value, which contradicts the purpose of revaluation.
• Option D: Credited to profit and loss appropriation account:
• This option is incorrect because the increase in asset value from revaluation does not affect the profit and loss account directly. The profit and loss appropriation account deals with actual profits and distributions, while revaluation is an adjustment to asset values, not income.

Common Pitfalls:

• Students often confuse the treatment of revaluation with regular income or profit adjustments. Remember that revaluation affects the balance sheet and is not realized income.
• Failing to recognize that the revaluation surplus is recorded in a separate account can lead to incorrect financial statements.

Revision Summary:

• Revaluation of assets reflects their current market value and is crucial when admitting new partners.
• The increase in asset value is credited to the Asset Revaluation Account, not directly to the asset account.
• Understanding the distinction between asset revaluation and profit/loss is essential for accurate financial reporting.
• Always ensure to record both the new value and the increase in a separate revaluation account to maintain clarity in financial statements.