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  2. 2. Flow of presentation Introduction Of Human Resource Accounting Definition Of Human Resource Accounting Objectives Of Human Resource Accounting Advantages Of Human Resource Accounting Limitation Of Human Resource Accounting Human Resource Costs Methods Of Human Resource Accounting Conclusion BY: MANISHA VAGHELA 2
  3. 3. Introduction of HRA “ one asset is omitted and its worth I want to know, That asset is the value of men who run the show.” That the value of men (human resources) is not measured and reflected in the accounts of business enterprise. Although the success of the business to a greater extent depends upon the abilities, efficiencies and power of these people who actually run the business. BY: MANISHA VAGHELA 3
  4. 4. HRA may be considered as such an accounting system which recognizes the human resources as an asset and records it is the books of account after measuring its value in the same way as other physical resources. Such accounting may generate and present valuable and significant information relating to human resources. Employees are the greatest assets of an organization and its success or failure depends on the quality and performance of the employees. But traditional accounting systems fail to indicate the value of the most valuable BY: MANISHA VAGHELA 4
  5. 5. Definition of HRA “ HRA is an attempt to identify and report investments made in human resource of an organization. Basically it is an information system that tells the management what changes over time are occurring to human resources of the business.” BY: MANISHA VAGHELA 5
  6. 6.  “ Human resource is the measurement and quantification of organizational input such as recruiting, training experience and commitment.” “ HRA is the process of identifying and measuring data about human resources and communicating this information to interested parties.” “ HRA is the measurement of costs and value of the people for the organization.” BY: MANISHA VAGHELA 6
  7. 7. Objectives of HRA1) Provide cost value information about acquisition, development, allocation and maintenance of human resources so as to achieve organizational goals in effective manner.2) Enable management of the organization to effectively monitor the use of human resources.3) Increased managerial awareness of the value of human resources.4) Better decisions about people, based on improved information system. BY: MANISHA VAGHELA 7
  8. 8. 5) Accountability on the part of management for its human resources.6) Developing new measures of effective manpower utilization.7) Enabling a longer time horizon for planning and budgeting.8) Better human resource planning. BY: MANISHA VAGHELA 8
  9. 9. Advantages of HRA1) Information for manpower planning2) Information for making personnel policies3) Utilization of human resources4) Proper placements5) Increases morale and motivation6) Attracts best human resources7) Designing training and development programmers8) Valuable information to investors BY: MANISHA VAGHELA 9
  10. 10. Limitations of HRA1) The valuation of human assets is based on the assumption that the employees are going to remain with the organization for a specified period. However, this assumption is wrong because employee mobility is very high.2) The human resource accounting may lead to the dehumanization in the organization. If the valuation is not done correctly or the results of the valuation are not used properly. BY: MANISHA VAGHELA 10
  11. 11. 3) In the case of financial accounting, there are certain specified accounting standards which every organization must follow. However, there are no standards for HRA. Each organization has its own standards for HRA. So, there are no uniform standards for HRA. Therefore, the HRA of two organizations cannot be compared.4) There are no specific and clear cut guidelines for cost and value of human resources of an organization. The present valuation systems have many limitations. BY: MANISHA VAGHELA 11
  12. 12. 5) The life of a human being is uncertain. So its value is also uncertain. BY: MANISHA VAGHELA 12
  13. 13. Method of Human Resources BY: MANISHA VAGHELA 13
  14. 14. Method Human Resource Accounting Monetary Non- method Monetary BY: MANISHA VAGHELA 14
  15. 15. Monetary method1. Historical cost method2. Replacement cost method3. Standard cost method4. Current purchasing power method5. Opportunity cost method6. Economic value method Non-Monetary Method1. Expected Realizable value method2. Discounted net present value of future earning BY: MANISHA VAGHELA 15
  16. 16. Historical cost method This method was developed by Rensis Likert. Historical cost method also called Actual cost method. Two types of costs - (a) Acquisition cost (b) Learning cost (a) Acquisition cost : Acquisition cost refers to the expense incurred on recruitment, selection, and BY: MANISHA VAGHELA 16
  17. 17. (b) Learning cost: Learning cost refer to expenses incurred on training and development. Under this method, the cost of acquisition i.e. selection, hiring, training costs of employees are capitalized and written off over the expected useful life of the employees. In case, the personnel leave the company before the anticipated period of service, then the unamortized portion of costs remaining in the company’s books is written off against the profit and loss account in that year. If the period of service exceeds the anticipated time, then amortization of costs is BY: MANISHA VAGHELA 17
  18. 18. Advantages This method is sample to understand and easy to work out. The traditional accounting concept of matching cost with revenue is followed in this method. It can provide a basis of evaluating a company’s return on its investment in human BY: MANISHA VAGHELA 18
  19. 19. Advantages This method is that the effect of HRA can be shown on conventional balance sheet and profit and loss account because the information in these statement is also stated on historical cost BY: MANISHA VAGHELA 19
  20. 20. Limitation It is very difficult to estimate the number of years an employee will be with the firm. It is difficult to estimate the number of years over which the capitalised expenditure is to be amortised. It is difficult to determine the rate of amortisation. Should it be increasing, or decreasing. BY: MANISHA VAGHELA 20
  21. 21. Limitation The economic value of human resources increases over time as the people gain experience. But in this approach, the capital cost decreases through BY: MANISHA VAGHELA 21
  22. 22. Replacement cost method This approach was first suggested by Rensis Likert, and was developed by Eric G. Flamholtz on the basis of concept of replacement cost. Under this method, replacement cost refers to the cost of replacing an existing employee. Replacing cost is the cost that would cost to replace the existing human resources with human resources capable of rendering equivalent services. Here, the underlying costs BY: MANISHA VAGHELA 22
  23. 23. in replacement cost are the cost of recruitment, training and development, opportunity cost for the intervening period till the new recruit attains the efficiency level equal to that of the old employee. According to Likert (1985) replacement cost include recruitment, selection, compensation, and training cost (including the income foregone during the training period). The data derived from this method could be useful in deciding whether to dismiss or replace the BY: MANISHA VAGHELA 23
  24. 24. 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. BY: MANISHA VAGHELA 24
  25. 25. Limitation 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. This method does not reflect the knowledge, competence and loyalties concerning an organization that an individual can build over time. BY: MANISHA VAGHELA 25
  26. 26. Limitation It is difficult to find out the cost of replacing human resources and different persons may arrive at different BY: MANISHA VAGHELA 26
  27. 27. Human resource BY: MANISHA VAGHELA 27
  28. 28. Human resource costs Costs incurred on locating, selecting and trainingemployees are the capital component of investment inhuman resources. These are similar to the costs of fixedassets, e.g. purchase price and cost of installation.various types of human resource costsRecruitment costsSelection costsHiring and placement costsOrientation costsTraining costsDevelopment BY: MANISHA VAGHELA 28
  29. 29. • Recruitment costs: The costs are incurred to identify the possible sources of employees, e.g. , advertising, travel, fees of employment, agency, company’s recruitment, BY: MANISHA VAGHELA 29
  30. 30. • Selection Cost: Selection is the managerial decision making process as to predict which job applicants will be successful if hired. Cost of application forms, testing, interviews and allocated administrative BY: MANISHA VAGHELA 30
  31. 31. BY: MANISHA VAGHELA 31
  32. 32. Orientation costs costs incurred to familiarize the new employees Facilities Products Programmers Policies employee Regulation BY: MANISHA VAGHELA 32
  33. 33. • Hiring and Placement Costs: Travel expenses to select employees, expenses for moving to the firm’s place, BY: MANISHA VAGHELA 33
  34. 34. BY: MANISHA VAGHELA 34
  35. 35. • Orientation Costs: Costs incurred to familiarize the new employees with polices, facilities, products, etc. of the BY: MANISHA VAGHELA 35
  36. 36. BY: MANISHA VAGHELA 36
  37. 37. • Training Costs: Trainer’s salary, training facilities, low productivity during training, BY: MANISHA VAGHELA 37
  38. 38. BY: MANISHA VAGHELA 38
  39. 39. • Development Costs: Costs incurred to increase the employee’s capabilities beyond immediate skills required for the job, advancement, e.g. , fees and expenses for attending seminars and executive development BY: MANISHA VAGHELA 39
  40. 40. BY: MANISHA VAGHELA 40
  41. 41. Review of presentation Introduction of HRA Definition of HRA Objectives of HRA Advantages of HRA Limitation of HRA Human resource costs Method of BY: MANISHA VAGHELA 41
  42. 42. Conclusion So, from the above presentation we can easily understood human resource cost related to historical and replacement method. Human resource cost includes Recruitment costs, Selection costs, Hiring and placement costs, Orientation costs, Training costs, Development costs. Also measuring the employee and achieve organisation BY: MANISHA VAGHELA 42
  43. 43. Bibliography Human resource management and Industrial relation - Dr. Jayshree Thakare - R. K. Balyar Human resource management - C. B. Gupta BY: MANISHA VAGHELA 43
  44. 44.  Human resource management - S. S. Khanka Website Human resource Human resource BY: MANISHA VAGHELA 44
  45. 45. Questions What is definition of HRA ? How many cost of Human resource cost ? HRA is part of HRM ? - Yes/No What is Historical cost method ? HRA Method useful in organization ? BY: MANISHA VAGHELA 45
  46. 46. BY: MANISHA VAGHELA 46