129109853-HR-Accounting human resources management by Rajeev Jain .ppt

human resources management by Rajeev Jain

1. human resource accounting

2. Meaning of human resource accounting
Human Resources accounting, also known as
Human Asset Accounting, involved identifying,
measuring, capturing, tracking and analyzing the
potential of the human resources of a company and
communicating the resultant information to the
stakeholders of the company.
  It was a method by
which a cost was assigned to every employee when
recruited, and the value that the employee would
generate in the future.
  Human Resource accounting
reflected the potential of the human resources of an
organization in monetary terms, in its financial
statements.

3. Definitions of Human Resource Accounting
AAA Definition:
“ The process of identifying and measuring data about human
resources and communicating this information to the interested
parties ”
Stephen Knauf (1983):
“ The measurement and quantification of human organizational
inputs such as recruiting, training, experience and commitment ”
Eric Flamholtz
“ Accounting for people as organizational resources. It is the
measurement of the cost and value of people for the organization ”

4. Why HRA?
•It furnishes cost/value information for making
management decisions about acquiring, allocating,
developing, and maintaining human resources in order to
attain cost-effectiveness;
•It allows management personnel to monitor effectively the
use of human resources;
•It provides a sound and effective basis of human asset
control, that is, whether the asset is appreciated, depleted
or conserved;
•It helps in the development of management principles by
classifying the financial consequences of various
practices.

5. Need for hra
HR Accounting is very much needed to provide effective & efficient
management within the organization.
* If there is any change in the structure of manpower, it is HRA which
provides information on it to the management.
* HRA provides qualitative information & also assess the cost incurred
in personnel.
* It gives a platform to the management by providing factors for better
decision-making for future investment.
* The return on Investment on human capital is best evaluated through
HRA.
* HRA communicates to the organization & public about the worth of
human resources & also its proper allocation within the organization.
* HR helps the management in developing principles by classifying the
financial consequences of the various practices.

6. Valuation Approaches of Human
Resource
Measurement is arbitrary and there are
mainly 2 approaches;
•Cost based approaches
•Present Value of Future Earning
•Cost Based Approaches
1. Historical Cost Approach
2. Replacement Cost Approach
3. Opportunity Cost Approach
 

7. Historical Cost Approach
•The cost of recruitment, selection, development
are all capitalized and amortized over the useful
life time of the employee. This amortization may
be dealt according to the situation.
 
•Benefits: Easy to operate, Conforms with the
matching principle, Similar to the treatment of
other fixed assets
•Shortcomings: Estimation of the useful life time
may not be easy, The value of humans are
generally increasing over time - but this method
gives a declining picture, This method doesn’t
actually measure the value but undermines it

8. Replacement Cost Approach
•The cost to replace the existing human
resources are estimated. All costs incurred to
attain the current level of competence of an
existing employee. Created from scratch
 
•Benefits: Is present/ future oriented
•Disadvantage: Not always possible to obtain
such a measure (identical replacement), It is
hence subjective
 

9. Opportunity Cost Approach
Is based on economic concept which overcomes
the deficiency in replacement cost app. Measured
through a competitive bidding process within the
entity.
 
 
Steps:
1. The entity is divided in to investment centers 2.
The investment centre managers bid for scarce
employees they need within the entity
 
 
3. The maximum bid price may obtained by the
capitalization of the excess profits generated by
the employee
 

10. Present Value of Future Earnings
Lev and Schwartz (1971) proposed an economic valuation of employees
based on the present value of future earnings, adjusted for the probability
of employees’ death/separation/retirement. This method helps in
determining what an employee’s future contribution is worth today.
According to this model, the value of human capital embodied in a person
who is ‘y’ years old, is the present value of his/her future earnings from
employment and can be calculated by using the following formula:
E(Vy) = Σ Py(t+1) Σ I(T)/(I+R)t-y
T=Y Y
where E (Vy) = expected value of a ‘y’ year old person’s human capital T =
the person’s retirement age Py (t) = probability of the person leaving the
organisation I(t) = expected earnings of the person in period I r = discount
rate
Limitations
•The measure is an objective one because it uses widely based
statistics such as census income return and mortality tables.
•The measure assigns more weight to averages than to the value of
any specific group or individual

11. Investment pattern
The human resource investment usually consists of the following items:-
1)
      Expenditure on advertisement for recruitment
2)
      Cost of selection
3)
      Training cost
4)
      On the job training cost
5)
      Subsistence allowance
6)
      Contribution to provident Fund
7)
      Educational tour expenses
8)
      Medical expenses
9)
      Ex-gratia payments
10) Employee’s Welfare Fund
All these items influence directly or indirectly the human resources and
the productivity of the organization.

12. Hra in india
Though Human Resources Accounting was introduced way back in the
1980s, it started gaining popularity in India after it was adopted and
popularized by NLC.
  Even though the situation prevails, yet, a growing
trend towards the measurement and reporting of human resources
particularly in public sector is noticeable during the past few years.
 
BHEL, Cement Corporation of India, ONGC, Engineers India Ltd.,
National Thermal Corporation, Minerals and Metals Trading Corporation,
Madras Refineries, Oil India Ltd., Associated Cement Companies, SPIC,
Metallurgical and Engineering consultants India Limited, Cochin
Refineries Ltd. Etc. are some of the organizations, which have started
disclosing some valuable information regarding human resources in their
financial statements. It is needless to mention here that, the importance
of human resources in business organization as productive resources
was by and large ignored by the accountants until two decades ago.