The document discusses various aspects of human resource accounting (HRA), including: 1. The objectives of HRA are to improve management decision making regarding human resources as assets, attracting and retaining qualified employees, and analyzing investments in human capital. 2. Several approaches to valuing human resources are described, including historical cost, replacement cost, and opportunity cost models. Specific models like the Lev and Schwartz model and Eric Flamholtz model are also covered. 3. The limitations of HRA are that there is no set methodology, how to record values in financial statements is unclear, and tax laws do not recognize people as assets.

2. 
 Introduction
 Objectives of HRA
 Importance of HRA
 Limitations
 Cost of Human Resources
 Measurements in HRA
Contents

3. 
 Process of identifying and measuring data about
human resources and communicating this
information to interested parties
 Quantification of the economic value of the people in
an organization
 Measurement and reporting of the cost and value of
people in organizational resources : Flamholtz
 Art of valuing, recording and presenting
systematically the worth of human resources in the
books of account of an organization
Introduction

4. 
1. Valuation of human resources
2. Recording the valuation in the books of account
3. Disclosure of the information in the financial
statements of the business
Contd…

5. 
 Improve management by analyzing investment in
HR
 Consider people as its asset
 Attract and retain qualified people
 Profile the organization in financial terms
 To have an analysis of the human asset
 To aid in the development of management
principles, and proper decision making for the future
Objectives

6. 
 Furnishes cost/value information for making management decisions about
acquiring, allocating, developing, and maintaining human resources in
order to attain cost-effectiveness
 Helps the management in the employment, locating and utilization of
human resources
 Helps in deciding the transfers, promotion, training and retrenchment of
human resources
 Assists in evaluating the expenditure incurred for imparting further
education and training in employees in terms of the benefits derived by
the firm
Importance of HRA

7. 
 Management tool designed to assist senior management in
understanding the long term cost and benefit implications of
their HR decisions
 Helps in identifying the causes of high labour turnover at
various levels and taking preventive measures to contain it
 Helps in identifying improper or under-utilization of physical
assets or human resource or both
 Provides valuable information for persons interested in making
long term investment in the firm
Contd…

8. 
 No specific procedure for finding cost and value of
human resources of an organization
 Form and manner of including HRA value in the
financial statement is not clear
 Employee with a comparatively low value may feel
discouraged
 Tax laws do not recognize human beings as assets
Limitations

9. Cost of
Human
Resources
Acquisition cost
-Recruitment Cost
-Selection Cost
-Placement Cost
-Campus Interview Cost
Training (Development)
cost
-Formal Training Cost
-On the Job Training Cost
-Special Training
-Development Programmes
Welfare Cost
-Medical Expenditure
-Canteen Expenditure
-Specific and General Allowances
-Children Welfare Expenses
-Other Welfare Expenditure
Other Costs
-Safety Expenditure
-Ex-gratia
-Multi-trade incentives
-Rewarding Suggestions

10. 
Measurements in HRA
•Historical Cost
•Replacement Cost
•Opportunity Cost
•Standard Cost
Cost based approaches:
•The Lev and Schwartz Model (Present value of future earnings method)
•The Eric Flamholtz Model (Reward Valuation method)
•Morse Model (Net Benefit Model)
Monetary value based approaches:
•Likert Model
•The Flamholtz Model
•Ogan Model (Certainity Equivalent Net Benefit Model)
Non- monetary value -based approaches:

11. 
Cost
It is a sacrifice incurred to obtain some anticipated
benefit or service
Two portions :
Expense
Asset
COST APPROACH

12. 
 Historical cost
Sacrifice that was made to acquire and develop the
resource
 Opportunity cost
Money to be spent on HR was spent on something else
 Replacement cost
Cost incurred in the replacement of present employees
Types of Cost

13. 
 This approach was developed by William C. Pyle nd R.G.
Barry corporation, a leisure footwear manufacturer based on
Columbus, Ohio (USA) in 1967
 In this approach, actual cost incurred on recruiting, hiring,
training and development the human resources of the
organisation are capitalised and amortised over the expected
useful life of the human resources.
 Thus a proper recording of the expenditure made on hiring,
selecting, training and developing the employees is
maintained and a proportion of it is written off to the income
of the next few years during which human resources will
provide service.
Historical Cost Approach

14. 
 This approach was first suggested by Rensis Likert, and was
developed by Eric G. Flamholtz
 Human resources of an organisation are to be valued on the
assumption that a new similar organisation has to be created
from scratch and what would be the cost to the firm if the
existing resources were required to be replaced with other
persons of equivalent talents and experience.
 It takes into consideration all cost involved in recruiting,
hiring, training and developing the replacement to the present
level of proficiency and familiarity with the organisation.
 This approach is more realistic as it incorporates the current
value of company’s human resources in its financial statements
prepared at the end of the year.
Replacement Cost Approach

15. 
 This method was first advocated by Hc Kiman and
Jones
 Opportunity cost is the value of an asset when there is
an alternative use of it. There is no opportunity cost for
those employees that are not scarce and also those at
the top will not be available for auction. As such, only
scarce people should comprise the value of human
resources.
 This method can work for some of the people at shop
floor and middle order management.
Opportunity Cost

16. 
Lev & Schwartz advocated the estimation of future
earnings during the remaining service life of the
employee and then arriving at the present value by
discounting the estimated earnings at the cost of
capital. The assumptions in this method are realistic
and scientific.
The method has practical applicability when the
availability of quantifiable and analyzable data is
concerned.
The Lev and Schwartz Model

17. 
According to this model, the value of human resources
is ascertained in the following ways:
 All employees are classified into specific groups
according to age, experience, and skill.
 Average annual earnings are determined for various
ranges of age.
 The total earnings each group will get up to
retirement age are calculated.
 The total earnings calculated as above are discounted
at the rate of the cost of capital.
 The value thus arrived at will be the value of human
resources/assets.

18. 
This is an improvement on the present value of the
future earnings model since it considers the possibility
or probability of an employee’s movement from one role
to another in his career and of leaving the firm earlier,
that is, death or retirement.
The model suggests a five-step approach for assessing
the value of an individual to the organization:
The Eric Flamholtz Model

19. 
 Forecasting the period will remain in the
organization, i.e., his expected service life;
 Identifying the services states, i.e., the roles that they
might occupy, including, of course, the time at which
he will leave the organization;
 Estimating the value derived by the organization
when a person occupies a particular position for a
specified period;
 Estimating the probability of occupying each
possible mutually exclusive state at specified future
times; and
 Discounting the value at a predetermined rate to get
the present value of human resources.

20. 
 Under this model, the value of human resources is
equivalent to the present value of the enterprise’s net
benefits from its employees’ service. The following
steps are involved in this approach:
 The gross value of the services to be rendered by the
employees in their individual and collective capacity.
 The value of direct and indirect future payments to
the employees is determined.
 The excess of the value of future human
resources over the value of future payments is
ascertained. This represents the net benefit to the
enterprise because of human resources.
Morse Model

21. 
Rensis Likert, in the 1960s, was the first to research HRA(Human
Resource Accounting) and emphasized the importance of strong
pressures on HR’s qualitative variables and its benefits in the
long run.
The Likert Model is a non-monetary value-based model.
According to Likert’s model, the human variable can be divided
into three categories:
 Causal variables;
 Intervening variables; and
 End-result variables.
The interaction between the causal and intervening
variables affects the end-result variables through job satisfaction,
costs, productivity, and earnings.
Likert Model

22. 
Pekin Ogan (1976) was the pioneer of the Net benefit model.
This is an extension of the “net benefit approach,” as suggested
by Morse.
According to this approach, the certainty with which the net
benefits in the future will accrue should also be considered
while determining the value of human resources.
The approach requires the determination of the following:
 Net benefit from each employee.
 Certain factors at which the benefits will be available.
 The net benefits from all employees multiplied by their
certainty factor will give certainty-equivalent net benefits.
Ogan’s Model

23. 
The traditional accounting practices ignored the value of human
factors in the organization and preferred treating them as expense
and expendable. This fundamentally lopsided attitude towards
human resources decisively goes against the employees’ interests.
For instance, the cost of training incurred to update the skills and
knowledge of the employees were treated only as an expense and not
as an investment.
Although human resource accounting is still in its infancy as far as its
development is concerned, a few approaches are available to study
human resource accounting.
However, none of these approaches has found universal acceptance
because they have inbuilt contradictions, incompleteness, or inability.
Thus far, these approaches have failed to fulfill the basic requirements
of traditional accounting concepts and practices like the double-entry
concept.
It is still challenging to determine the value of the organization’s
human resources through different methods, and accounting
techniques have already been opposed to human resource
accounting.
Conclusion

24. 
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