This document discusses human resource accounting (HRA). It provides definitions of HRA, lists group members, objectives, and methods of HRA including historical cost, replacement cost, opportunity cost, return on efforts employed, and reward valuation. It also discusses costs of human resources like acquisition, training, welfare, and other costs. An example is provided to evaluate HRA and show how human assets can be included in a balance sheet. Advantages include helping with employment and utilization of resources, while disadvantages include assumptions used for valuation and potential for dehumanization.

1. HUMAN RESOURCE
ACCOUNTING

2. GROUP MEMBERS
 Mayur
 Prajakta
 Ashwini
 Savita

3. INTRODUCTION OF HRA
“ One asset is amitted & its worth
I want to know,
That asset is the value of men
Who run the show.”

4. DEFINITION OF HRA
Management consultant Stephen Knauf has
defined HRA as:
 Human resource is the measurement and quantification of
organizational input such as recruiting, training experience and
commitment.
The American Accounting Society Committee on
HRA defines it as:
 HRA is the process of identifying and measuring data about human
resources and communicating this information to interested parties.

5. OBJECTIVES OF HRA
• 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.

6. METHODS OF HRA
I. Historical Cost Method.
II. Replacement Cost Method.
III. Opportunity Cost Method.
IV. Return On Efforts Employed
Method.
V. Reward Valuation Method.

7. I. HISTORICAL COST METHOD
 This method developed by Brummet, Flamholtz and
Pyle.
 This method the actual cost incurred on recruiting,
selecting, placing & developing.

8. 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.

9. 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.

10. II. REPLACEMENT COST METHOD
 This method was developed by Renis Likert and Eric G.
Falmholtz.
 In this method cost of recruiting, selecting, training etc. of new
employees to reach the level of competence of existing
employees are measured.

11. 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.

12. 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.

13. III.OPPORTUNITY COST METHOD
 To overcome the limitations of replacement cost method, Hekimian
and Jones Suggested the use of opportunity cost method which
determine the value of human resource on the basis of an
employee’s 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.

14. ADVANTAGES
 This method ensures optional allocation of human resources.
 It provides a quantitative base for planning, evaluating and
developing human resources of an organization.

15. 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.

16. IV. RETURN ON EFFORTS
EMPLOYED METHOD
 This 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.

17. ADVANTAGES
 It makes possible inter-divisional comparison which ensures
effective competition.
 It assist the management in regulating the various functions of an
organization.

18. 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.

19. V. REWARD VALUATION METHOD
 This 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:-
a. Estimation of employees service life.
b. Identification of set of service states (roles)
c. Estimation of employees service state (roles) at specified future
times.

20. ADVANTAGES
 It 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.

21. LIMITATIONS
 This 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.

22. COST OF HUMAN RESOURCES
1. Acquisition Cost
2. Training and Development Cost
3. Welfare Cost
4. Other Cost

23. 1. 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.

24. 2. 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.
a) Formal Training Cost:
refers to the cost incurred in conventional training for the
orientation of an individual.
b) On the Job Training Cost:
once the employee is placed on the job, he must be trained to
do job efficiently and effectively.

25. 2. 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.

26. 3. 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.
a) Welfare Amenities Within The Organization:
ex: creches, rest shelters and canteens, latrines and urinals,
washing and bathing facilities, drinking water and occupational
safety etc.
b) Welfare Outside The Organization:
ex: Social insurance measures, maternity benefits, medical
facilities, educational facilities, housing, holiday homes and leave ,
travel facilities etc.

27. 4. OTHER COSTS
In India, Factories Act 1948 has made statutory provisions wit regard to employees health,
safety and welfare as follows:
I. Health Of Workers:
• Cleanliness, disposal of waste and effluents
• Ventilation and temperature
• Dust and fumes
• Over crowding
• Lighting
• Drinking water
• Latrines and urinals

28. 4. OTHER COSTS
II. Safety Of The Workers:
• Fencing of machinary
• Hoist and lifts
• Pressure plant
• Precaution against danger fumes.
III. Welfare of Workers:
• Washing facilities
• Facilities for storing and drying clothing
• First aid appliances
• Canteens
• Welfare officers

29. 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 assessed
at Rs.8,00,000.

30. BALANCE SHEET
Liabilities Rs. Assets Rs.
Capital
Human Assets
Capital
10,00,000
8,00,000
Fixed Assets
Human Assets:
(i) Individuals’
Value
(ii) Value of Firm’s
Investments
Current Assets
5,00,000
8,00,000
2,40,000
2,60,000
18,00,000 18,00,000

31. ADVANTAGES OF HRA
 Helps in the employment, locating and utilization of human
resources.
 Helps in deciding the transfers, promotion, training and
retrenchment
 Provides 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.

32. DISADVANTAGES OF HRA
 The valuation of human assets is based on assumptions
 The HRA may leads to dehumanization.
 No standards of HRA
 Employee with a comparatively low value may feel discouraged.