Evaluation and Implementation of HRA in Educational Sector

A Glance on HRA In Educational Sector

1. A Presentation on “ Evaluation & Implementation Of HRA In Educational Sector ” Presented By S h a i k R u b e e n a

2. CHAPTER-1 INTRODUCTION Human Resource Accounting is the activity of knowing the cost invested for employees towards their recruitment, training them, payment of salaries & other benefits paid and in return knowing their contribution to organisation towards it's profitability. DEFINITION According to the American Accounting Association's Committee on Human Resource Accounting (1973), Human Resource Accounting is defined as “the process of identifying and measuring data related to human resource and communicating this information to interested parties”.

3. CHAPTER-2 PROBLEM STATEMENT The idea of HRA has been a debatable issue by academicians, accountant and standard setters universally. Even though many efforts have been made by thinkers in this field, a suitable and fully validated model of performance based traditional framework of accounting in the Indian context is not available. In this context, the present study is focus on developing a new model of human resource accounting in educational sectors which gives a platform for the teachers in order to exploring new ways of learning and teaching. This in turns has a great impact on the student’s life that shape tomorrows India.

4. CHAPTER-3 OBJECTIVES OF THE STUDY The current study has been undertaken with the following four major objectives, they are To develop a new model of HRA in educational sectors for analyzing and measuring the cost & value of human resource. To analyze the effect of HRA towards the performance levels of an employee and the firm. To evaluate the effect of demographic variables on their opinion towards the implementation of HRA in Educational sector. To underscore the importance of reporting human resource assets on the financial statements.

5. CHAPTER-4 REVIEW OF LITERATURE Several research studies conducted in many countries towards HRA. These researches include: In ( 2016) L.Augustin this paper suggests a model that would overcome some of the problems inherent in the previously discussed models by taking into consideration the current benefits and future benefits from human resources and distributing it over the year of an employment contract. The proposed model for the measurement of human resources also contributes to, estimated employees benefits that are included in the budget. In ( 2014) Ravendra Tiwari wrote an article on HRA- A New Dimensions he stated that researches are not able to develop a model which is free from major limitations of existing model that they are not able to identify two effect on human capital creation. In (2013) Mamtaratti stated that the model devised for HRA are developed keeping in mind the US environment. These model need to develop in India. continue….

6. In (2012) Nirnay stated that very few companies in India follow HRA practices and most of the companies disclose a few attributes of a HRA. High importance given to the cost aspect of employees and less attention is given to the true value of employees. In (2011) Bullen and Eyler State that HRA involves accounting for expenditure related to human resource as assets, as opposed to traditional accounting which treats this cost as expenditures that reduce profit. It is true that worldwide, knowledge has become the key determinant for economic and business success but Indian companies focus on ‘Return on Investment’(ROI), with very few concrete steps being taken to track ‘Return on knowledge’(ROI). ( Narayan , 2009) Continue…

7. In (2010) L.Bullen state that strong growth of IFRS may pave path for future financial reports that include the value of HR using HRA methods. In (2008) Dobija proposed an alternate model for capitalization. This method takes into account the 3 factors for valuing the human capital embodied in a person. Capitalized value of cost of living. Capitalized value of the cost professional education and value gained through experience.

8. CHAPTER-5 RESEARCH METHODOLOGY Exploratory cum Descriptive Research designs are adopted. Under Exploratory Research, A Literature Review method is used to identify and establish the research problem. Further, Cross-Sectional survey method of descriptive research will be used for conducting an Empirical study in engineering colleges at Andhra Pradesh in order to meet objectives with the help of a questionnaire. A five point Likert scale will be used in the questionnaire to arrive at conclusion and the entire data will be analyzed through SPSS.

9. METHODS OF HRA

10. HR COST ACCOUNTING Human resource cost accounting Measurement and reporting of costs incurred to acquire and develop people as organizational resources Deals with accounting for investment made by organization. It includes Accounting for the cost of personnel activities and function.and accounting for costs of developing people as human assets. 1.Historical cost method: -the actual cost incurred on selecting, training, placing and developing the human resource of enterprise. 2. Replacement cost method: - the cost of replacing employees is used as the measure of company’s human resources. 3. Opportunity cost method: - determines the value of human resource on the basis of an employee’s value in alternative uses.

11. Pros & Cons Of Historical Cost Approach Pros 1. Simple to understand and easy to work. 2. Traditional accounting concept of matching cost with revenue is followed. 3. Helping a firm in finding out a return on HR investment Cons 1.Difficult to estimate the number of years an employee will be with the firm 2.Difficult to fix a rate of amortisation . 3.Value of an asset decreases with amortisation .

12. Pros & Cons Of Replacement Cost Approach Pros   More realistic Representative and logical Adjusting of human value of price trends in economy Present oriented Cons Difficult to find the identical replacement Not possible to obtain measure of a particular employee Does not reflect the knowledge, competence 

13. Pros & Cons Of Opportunity Cost Approach Pros Promising approach Quantitative base Evaluating and developing Strong theoretical approach Useful in decentralized set- up Cons Discrimination among employees Lower morale of employee May be misleading Difficult to quantify future economic benefits

14. HR Value Accounting The concept is based on views that difference in present and future earning of two similar firms is due to the difference in their human organization. The economic value of the firm can be determined by obtaining the present value of future earnings. 

15. 1.Lev and Schwartz model The Lev and Schwartz model Lev and Schwartz developed an economic model in 1971 for determining the value of human resources. According to them the value of human capital emboided in a person of age t is the present value of his remaining future earning from employment. 1. All employees are classified in specific groups according to their age and skill. 2.Average annual earnings are determined for various ranges of age. 3.The total earnings which each group will get up to retirement age are calculated. 4.The total earnings calculated as above are discounted at the rate of cost of capital. The value thus arrived at will be the value of human resources/assets.

16. They have given the following formula for calculating the value of an individual: VX = ∑ [I (t)/( I+r )]T-X Where Vx = the value of an individual X years old. I(t) = the individuals annual earnings upto retirement. r = a discount rate specific to a person. T = retirement age. The model of HRA given by Lev and Schwartz ignored the possibility of death prior to retirement age. The model given by Lev and Schwartz can be considered as an improvement over the cost models as it seeks to value the human resources of an organisation on the basis of the economic value of employees of total organsiation .

17. Disadvantages 1.This model implies that the future work condition of the employee will not change over the span of his working life, but will remain the same as at present. 2.The approach does not take into account the possibility that the employee will withdraw from the organization prior to his death or retirement. It is therefore not realistic. 3. It ignores the variable of the career movement of the employee within the organization. 4.It does not take into account the role changes of employees. However, this method does not give correct value of human assets as it does not measure their contributions to achieving organizational effectiveness. 

18. 2. FLAMHOLZ MODEL FLAMHOLZ MODEL (1971) According to this model, an individual’s value to an organization is determined by the services he is expected to render to the organization during the period he is likely to remain with the organization in various positions or service states. N E(S) = ∑ Si P(Si) i =1 This model involves the following steps. 1.Estimation of period for which an individual is expected to render service. 2.Identification of various positions or service states that the employee might hold. 3.Estimation of probable period for which he is expected to hold each position. 4.Calculation of expected service to be derived from the individual by Where Si represents the quantity of services expected to be delivered in each state and P (Si) is the probability that the same will be obtained. 

19. Disadvantages 1.It is very difficult to estimate the likely service states and positions of each employee. 2. Individuals working in a group have higher value for the organisation as compared to the sum or their individual values. 

20. 3. GILES AND ROBINSON’S HUMAN ASSET MUTIPLIER METHOD They suggested a human asset measurement method known as human asset multiplier. According to this method, the valuation of human resources should be made in the same way as other business assets on a going concern basis. The calculation of human asset value under this method is based on the notion that an individual’s remuneration or the remuneration of a group of persons in the same grade may be multiplied by a factor determined on the basis of his contribution of the success of business. The total value of human assets employed in the business can be calculated simply by adding together all the individual values so calculated. 

21. 4. ROGER H. HERMANSON MODEL Roger H. Hermanson has suggested two models :- 1.Unpurchased goodwill modeladjusted 2.Discounted future wage model 1. Unpurchased Goodwill Model The value of human resource of an organization may be calculated by capitalizing earnings in excess of normal earnings for the industry or the group of companies of which the firm is a part. Example Capital investment of a firm = 10 lakhs Rate of normal earnings = 15% =›Normal earnings = 10,00,000 * 10⁄ 100= 1,00,000 Actual earnings= 15% of 10,00,000= 1,50,000 value of human assets= 50,000 * 100⁄15=3,33,333

22. 2. Adjusted Discounted Future Wage Model It uses compensation to measure a person’s value to the firm Compensation = present value of stream of wages + salaries to employees Discounted future wage stream is adjusted by an “efficiency ratio” which is the weighted average of the ratio of return on investment of the given firm to all the firms in the economy for a specified period , usually of 5 years. Limitations Subjective Arbitrary weights Restrictive period of 5 years

23. 5. Jaggi and Lau Model Jaggi and Lau Model Valuation of assets on group basis. A group implies homogeneous employees who may or may not belong to the same department or division. Easy evaluation Advantages Jaggi-lau model is based on group based valuation model. It simplifies the measurement It involves determination of economic value of an employee of each rank.  Jaggi & Lau models is given below: TV = (N) rn (T)n(V) Where TV = current value of all employees (N) = number of employees currently n = time period r = Discount rate (T) =probability that an employee will be in each rank (V) = economic value of an employee  n on group basis. 

24. 6. Morse Net Benefit Model Morse Net Benefit Model Steps : 1.Determine gross value of future services to be rendered by employees. 2.Determination of cost (Total payment to be made to employees in future) 3. Net Benefit: Step 2 – Step 1 4. Calculation of present value of net benefits by discounting at predetermined rate of discount. 

25. Therefore, there is a need for great deal of research which could be of considerable help in the process of human resource development. Certain models fail to recognise the factors determining the value of human resources whereas others have computational problems. The discussion of the HRA models reveals that there is not even a single model which fulfills all the requirements of a model which could help in the process of HRD

26. CHAPTER-6 CONCLUSION Finally I would like to conclude that there is no universally accepted method of human asset valuation. As far as our country is concerned HRA is still at the developmental stage much additional research is necessary for its effective applications. Because the new development of HRA in educational institution will give a platform for the teachers for exploring new ways of learning & teaching which in turn has a great impact on the students life that shape tomorrow India.

27. REFERENCE [1] Eyler , B. a. (2010), Human Resource Accounting:A New paradigam in the era of Globlization , Asian Journal of Mangement Research, ISSN:2229-3795. [2] L.Bullen . , "Human Resource Accounting"-Concepts & practices in India, Management accounting. january (2009).Vol.44. [3] Mamtaratti . (2014), Imapct of Human Resource Accounting in Educational Institutions, European Scientific Journal.Vol.1.ISSN:1857-7431. [4] L.Augustin , R. (2016) Problem with Humn Resource Accounting:A Possible Solution,Researh journal of Finance & Accounting. Vol.4. ISSN:2222-1697. [5] Nirnay . (2012) Human Resouce Accounting practices leads firms performance, International Journal of Business and General Management. Vol.3. Issue3. july . [6] Tiwari , R. (2013) Human Resource Accounting for academics, Intenationl Journal of Advanced Research in management and Social Science. ISSN:2278-6236. [7] Dasari , R. (2011)A study on Human Resource Accounting Methods and Practices in India, Intenationl Journal of Social Science. ISSN:2277-3630.