HUMAN RESOURCE ACCOUNTING

GROUP MEMBERSRAHUL KUMAR Roll No: 39UMESH KUMAR RAI Roll No: 49ROSY BASUMATARY Roll No: 40

NEED FOR HRA

DEVELOPMENT OF HRAWilliam petty(1991) made first attempt to value human beings in monetary terms.Labour as the father of wealth and it must be taken into account while making an estimate of wealth.

HRA It is the art of valuing, recording and presenting systematically the worth of human resources in the book of account of an organisation. It reveals following characteristics-Valuing the human resources of a company in a systematic wayRecording the valuation in the book of accountsPresenting the information in the financial statements of the business

DEFINITIONHuman resource accounting is the process of identifying and measuring data about human resources and communicating this information to interested parties. -by American Accounting Society Committee on HRA

Human resource accounting is accounting for people as an organisation resource. It involves measuring the costs incurred by business firms and other organisations to recruit, select, hire, train and develop human assets. It also includes measuring the economic value of people to organisations -by Flamhoiltz

OBJECTIVES Improve management by analyzing investment in HR. Provides cost value information.Consider people as its asset.Attract and retain qualified people.Enable management of the organization to effectively monitor the use of human resources.To aid in the development of management principles and proper decision making for the future.

METHODS OF HRA

Historical Cost Method.Replacement Cost Method.Opportunity Cost Method.Return On Efforts Employed Method.Reward Valuation Method.

HISTORICAL COST METHOD This method developed by Brummet, Flamholtz and Pyle.

This method the actual cost incurred on recruiting, selecting, placing & developing.

ADVANTAGES This method is simple to understand and easy to work out.

The traditional accounting concept of matching cost with revenue is followed in this method.

LIMITATIONS It is very difficult to estimate the number of years an employee will be with the firm.

It is difficult to determine the number of years over which the effect of investment on employees will be realized.

REPLACEMENT COST METHODThis method was developed by Rensis Likert and Eric G. Flamholtz.

In this method cost of recruiting, selecting, training etc. of new employees to reach the level of competence of existing employees are measured.

ADVANTAGES This method has the advantage of adjusting the human value of price trends in the economy and thereby provides more realistic value in inflationary times. It has the advantage of present oriented.

LIMITATIONS It may not always be possible to obtain such a measure for a particular employee.

It is not always possible to find out the exact replacement of an employee.

OPPORTUNITY COST METHOD

This method was advocated by Hc Kiman and Jones who suggested the use of opportunity cost method which determine the value of human resource on the basis of an employees value in alternative use. The value of an employee would be high if he has several alternative uses for employment in the various division of an enterprise.

ADVANTAGES This method ensures optional allocation of human resources.

It provides a quantitative base for planning, evaluating and developing human resources of an organization.

LIMITATIONS This method fails to accommodate the possibility of hiring of employees of similar efficiency, experience and skills.

The application of this method is doubtful unless the alternative use of an employees service available in an organization are traced out.

RETURN ON EFFORTS EMPLOYED METHODThis method measures the value of firms human resources on the basis of efforts made by the individual for organizational benefits. Depends upon the position of employee, degree of excellence and experience.

ADVANTAGESIt makes possible inter-divisional comparison which ensures effective competition.

It assist the management in regulating the various functions of an organization.

LIMITATIONS It is more an index of efficiency rather than a valuation method.

Management finds it difficult to measure and express the individual efforts in monetary value.

REWARD VALUATION METHODThis model is developed by Flamholtz, this method seeks to measure the value of human resources on the basis of an employees value to an organization at various states (roles).Employees value involves following steps:- - Estimation of employees service life. -Identification of set of service states (roles) -Estimation of employees service state (roles) at specified future times.

ADVANTAGESIt is the most scientific model as it demonstrates the impact of the concept of human asset upon the management.

It is matured model as it takes into consideration the employees withdrawal from the organization earlier than death or retirement.

LIMITATIONSThis method does not indicate the method of estimating the future compensation flow of employees. It is practically difficult to determine the probability of employees career movement within the organization and of his exit from organization.

COST OF HUMAN RESOURCESAcquisition CostTraining and Development CostWelfare CostOther Cost

ACQUSITION COST It refers to the cost incurred in acquiring the right man for the right job at the right time in a right quantity.a) Recruitment cost ex: cost of recruiting material, administrative expenses, advertising costs, agency fees, recruiters salary and travel and outside cost. b) Selection Cost:- ex: cost of application banks, administrative cost of processing applications, conducting tests and interviews, medical examinations and salaries.c) Placement Cost: ex: depends upon the placement, individuals ability and attitude.

TRAINING & DEVELOPMENT COST It refers to the sacrifice that must be made to train a person either to provide expected level of performance or to enrich individuals skills.

Formal Training Cost: refers to the cost incurred in conventional training for the orientation of an individual.

On the Job Training Cost: once the employee is placed on the job, he must be trained to do job efficiently and effectively.

TRAINING & DEVELOPMENT COST c) Special Training Cost: To achieve the performance standards sometimes special training programmers may be devised.

d) Development Programmers: Employees may be allowed to participate in development programs may range from ordinary lectures to international conferences and seminars. Involves cost such as delegated fees, travel cost, loss output etc.

WELFARE COST A vital function of an employer to provide an atmosphere to the employees to perform their work in healthy, congenial climate conducive to good health and high morale.

Welfare Amenities Within The Organization: ex: creches, rest shelters and canteens, latrines and urinals, washing and bathing facilities, drinking water and occupational safety etc.

Welfare Outside The Organization: ex: Social insurance measures, maternity benefits, medical facilities, educational facilities, housing, holiday homes and leave , travel facilities etc.

OTHER COSTS In India, Factories Act 1948 has made statutory provisions wit regard to employees health, safety and welfare as follows:

Health Of Workers:Cleanliness, disposal of waste and effluentsVentilation and temperatureDust and fumesOver crowdingLightingDrinking waterLatrines and urinals

OTHER COSTSSafety Of The Workers:Fencing of machinaryHoist and lifts Pressure plantPrecaution against danger fumes.

Welfare of Workers:Washing facilitiesFacilities for storing and drying clothingFirst aid appliancesCanteens Welfare officers

EVALUATION OF HUMAN RESOUCE ACCOUNTING

Example: A firm has started its business with a capital of Rs.10,00,000.

It has purchased fixed assets worth Rs.5,00,000 in cash. It has kept Rs.2,60,000 as

working capital and incurred Rs.2,40,000 on recruiting, training and developing the engineers and few workers.

The value of engineers and workers is assessedat Rs.8,00,000.

BALANCE SHEET

ADVANTAGES OF HRA Helps in the employment, locating and utilization of human resources.Helps in deciding the transfers, promotion, training and retrenchmentProvides valuable information to person in making long term investment.Helps in identifying improper utilization oh human resource. Helps in identifying the causes of high labor turnover.

DISADVANTAGES OF HRAThe valuation of human assets is based on assumptions

Tax laws doesn't recognize human beings as assets. Hence HRA remains merely as theoritical concept.

No standards of HRA

Employee with a comparatively low value may feel discouraged.

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