Hr accounting


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Hr accounting

  1. 1. Prestige institute ofmanagement, gwalior Class Presentation of strategiC hrm on human resourCe aCCounting Presented by: neha sharma mba 4 th sem
  2. 2. meaning of human resourCe aCCounting Human Resources accounting, also known as HumanAsset Accounting, involved identifying, measuring,capturing, tracking and analyzing the potential of thehuman resources of a company and communicating theresultant information to the stakeholders of thecompany. It was a method by which a cost wasassigned to every employee when recruited, and thevalue that the employee would generate in the future.Human Resource accounting reflected the potential ofthe human resources of an organization in monetaryterms, in its financial statements.
  3. 3. definitions of human resourCe aCCountingAAA Definition: “ The process of identifying and measuring data about humanresources and communicating this information to the interested parties”Stephen Knauf (1983): “ The measurement and quantification of human organizational inputssuch as recruiting, training, experience and commitment ”Eric Flamholtz “ Accounting for people as organizational resources. It is themeasurement of the cost and value of people for the organization ”
  4. 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. 5. need for hraHR 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. 6. Valuation aPProaChes ofhuman resourCeMeasurement is arbitrary and there are mainly 2 approaches; Cost based approaches Present Value of Future Earning Cost Based Approaches1. Historical Cost Approach2. Replacement Cost Approach3. Opportunity Cost Approach
  7. 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. 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. 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 entity3. The maximum bid price may obtained by the capitalization of the excess profits generated by the employee
  10. 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 rateLimitations 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. 11. inVestment PatternThe human resource investment usually consists of the following items:-1) Expenditure on advertisement for recruitment2) Cost of selection3) Training cost4) On the job training cost5) Subsistence allowance6) Contribution to provident Fund7) Educational tour expenses8) Medical expenses9) Ex-gratia payments10) Employee’s Welfare FundAll these items influence directly or indirectly the human resources and the productivity of the organization.
  12. 12. hra in india Though Human Resources Accounting was introduced way back in the1980s, it started gaining popularity in India after it was adopted andpopularized by NLC. Even though the situation prevails, yet, a growingtrend towards the measurement and reporting of human resourcesparticularly in public sector is noticeable during the past few years. BHEL,Cement Corporation of India, ONGC, Engineers India Ltd., NationalThermal Corporation, Minerals and Metals Trading Corporation, MadrasRefineries, Oil India Ltd., Associated Cement Companies, SPIC,Metallurgical and Engineering consultants India Limited, CochinRefineries Ltd. Etc. are some of the organizations, which have starteddisclosing some valuable information regarding human resources in theirfinancial statements. It is needless to mention here that, the importance ofhuman resources in business organization as productive resources was byand large ignored by the accountants until two decades ago.
  13. 13. ConClusion
  14. 14. Thank You