Wrong entry- rectification required

Delhi Public School, .

During 2010-11 actual profit Rs. 1.20 cr, Due to HO instruction Auditor create a false appropriatiob 

 as Arrear Salary of Rs. 40 Lacs & a Building Funfd Rs. 60 Lacs and reduce profit to Rs. 20 Lacs only.

These appropriations are showing under Reserve & Surplus.

This year 2011-12,  these figures are capitalised,

Is it right teatment ?  

suggest right treatment bcoz auditor  is willing to change the audit report accordingly.