Human Resource Accounting And Valuation..>shahid Elims

PRESENTED BY SHAMNA MOHAMMED KUTTY ROLL NO:48

Accounting for the human resources deals with the measurement of costs which are associated with recruiting, selecting, training, placing and developing the employees of an organization. This also involves measuring the present economic value of human

American Accounting Association has defined Human Resource Accounting (HRA) “as a process of identifying and measuring data about human resources and communicating this information to the interested parties”.

1. It helps in giving valuable information to

the management for effective planning and managing human resources. 2. It helps in measurement of standard cost of recruiting, selecting, hiring and training people and organization can select a person with highest expected realisable value .

1. HRA can change the attitude of mangers,

thereby, they would try to maximise the expected value of human resources and effective use of human resources in the organization.

5. It also provides necessary data to devise

suitable promotion policy, congenial work environment and job satisfaction to the people.

1. There is no well-set standard accounting

practice for measuring the value of human resources. 4. The valuation of human resources is based

on the assumption that the employees may remain with the organization for certain specified

1. There is a possibility that human resource

accounting may lead to the dehumanization in the organization if the valuation is not done correctly. 4. There is also a possibility that trade unions

may oppose the use of HRA. They may want parity of wages/salaries and value of the employees.

Valuation of the human asset is the most important aspect of Human Resources Accounting. A recent trend in today’s corporate world is to measure the value of intangible assets such as goodwill, patent, brands and now human assets.

The major methods of valuation of human assets are historical cost, replacement cost, standard cost, present value of the future earnings and expected realisable value. 6.Historical Cost Method:

This method is based on cost incurred on human resources such a cost may be of two types-Acquisition cost and learning cost.

Learning cost involves expenses incurred on training and development. This method is very simple in its application but it does not reflect the true value of human assets. For example, an experienced employee may not require much training and therefore his value may appear to be low though his real value is

1. Replacement cost method:

This method values the human resources as what it would cost to replace the organization's existing human resources. This cost would include the cost of recruiting, training and familiarisation as well as the opportunity cost from lost revenue during the period of training.

1. Standard Cost Method:

According to this method, employees of an organization are categorised in to different groups based on their hierarchical position. Standard cost is fixed for each category of employees and their value is calculated. This method is simple but does not take into account difference in employees put in the same group.

Present value of future earnings Method: In this method, the future earning of various groups of employees are estimated up to the age of their retirement and are discounted at a predetermined rate to obtain the present value of such earning. However this method does not give correct value of human assets as it does not measure their contribution to achieving

This method is based on the assumption, and this is true also, that there is no direct relationship between cost incurred on an individual and his value of organization.

Individual attributes

Instrument al individual determinan ts

Cognitive abilities personalit y traits

Skills Activation level attributes

Organizatio nal structure Managemen t system

Role Reward s

Elements of Conditional value

Promotabilit y Productivity Transferabili ty

Individual condition al value

Satisfactio n with organizati on

Instrumental org Org determinants attribute s Model of the determinants of an individual value to an Organization

IERV Promota bility of maintain ing org member s