Human Resource Accounting
By
Trilochan Sharma
CONTENT
CONTENT
1. Introduction
2. Definition
3. Advantage
4. Objective
5. Methods
6. Components of Human Resource
Investment
INTRODUCTION
“One assets is omitted & its worth
I
know
That assets is the value of man
Who
the show”
Human resources are considered as important assets and
are different from the physical assets.
Human resource accounting is the process of identifying and
reporting investments made in the human resources of an
organization.
HRA is an extension of standard accounting principles.
The terms “Human Resource Management” and “Human Resource” (HR) have
largely replaced the term “Personnel management" as a description of the
processes involved in managing people in organization, but it still continues to
be used as a synonym.
DEFINITION
1. (AAA) defines HRA as follows: “is a process of identifying and measuring data
about human resources and communicating this information to interested
parties”
- American Association of Accountants(1973)
2. “accounting for people as an organizational resource. It involves measuring
the costs incurred by organizations to recruit, select, hire, train, and develop
human assets”
- Eric Flamholtz (1974)
3. “HRA is the measurement and quantification of human
organizational inputs such as recruiting, training, experience and
commitment”
- Stephen Knauf (1983)
4. “Human Resource Accounting involves measuring the costs
incurred by business firms and other organizations to recruit,
select, hire, train and develop human assets. It also involves
measuring the economic value of people to the organization”.
- Palanivelu, R.P (2007)
ADVANTAGE
Information for manpower planning
Proper Placement
Attracts best human resources
Increases morale and motivation
Utilization of human resources
Information for making personnel policies
Valuable in formation to investors
LIMITATIONS
It is a difficult task to value human asset
Human Resource Accounting is full of measurement problems
Employees and unions may not like the ideas
The life of a human being is uncertain. So its value is also uncertain
It lacks empirical evidence
OBJECTIVE
For better human resource
planning
Assisting in developing
effective management
practices
Assisting in effective
utilization of manpower
Finding depreciation among
human resources
Enable management to
monitor the use of human
METHODS
Historical Cost Method
Replacement Cost Method
Opportunity Cost Method
Standard Cost Method
Economic Valuation Method
1. Historical Cost Method
Historical cost is based on actual cost incurred on human
resources. Such a cost may be of two types – acquisition
cost and learning cost. Acquisition cost is the expense
incurred on training and development. This method is very
simple in its application but it does not reflect the true value
of human assets.
2. Replacement Cost Method
The replacement cost method of HR accounting values
an employee in terms of the amount it would cost the
company to replace him. This method holds that the
economic worth of a worker is equal to the estimated
cost of recruiting, hiring and training a replacement, or of
finding an employee with a similar set of skills and
talents.
3. Opportunity Cost Method
The opportunity cost method of human resource accounting, also referred
to as the competitive bidding model, assigns value to an employee based
on what each department would be willing to pay him. This method
envisions a fictitious situation in which a company suddenly finds labor and
talent scarce and individual divisions or departments within the company
must bid on existing employees.
4. Standard Cost Method
The standard cost method of human resource accounting
involves determining the total cost of recruiting and hiring
each employee, as well as the cost of any training or
development. According to the standard cost method, the
economic value of an employee is the total of these
expenditures, and the annual economic value of the entire
workforce is equal to the total amount of money spent on
recruiting, hiring, training and developing all employees
during the year.
5. Economic Valuation Method
The economic value model of human
resource accounting involves estimating
the total inflow of cash that will be
produced by an employee over the course
of his service to the company. Subtract the
total cost of hiring, training, developing
and paying an employee from the estimate
of the cash he will generate for the
company, and you have arrived at his net
worth according to the economic value
method of HR accounting.
COMPONENTS OF HUMAN RESOURCE
INVESTMENT
Expenditure on advertisement for recruitment
Workforce planning cost
Cost of selection
Training and development cost
On the job training cost
Skill management cost
Cost of Induction, orientation and on boarding
Personnel administration cost
Contribution to provident fund
Compensation in wage/salary
Educational tour expenses
Medical expenses
Ex-gratia payments
Employees' welfare fund
Subsistence allowance
THAN
K YOU
