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Human Resource Accounting is, theprocess of identifying and
measuring data about human
resource and communicating this
information to interested parties.
-American Accounting Association
Committee
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SATGEI(1960-66)
STAGE
II(1966-71)
STAGEIII(1971-76)
STAGEIV(1976-80)
STAGEV(1980onwards)
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Acc to Eric G Falmholtz
First stage (1960-1966)-
Beginning of academic interest in the area of
HRA
Second stage(1966-1971)-
The focus here was more on development and
validating deferent models
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Third stage(1971-1976)-
This period was marked by a widespread
interest in the field of HR R.G. Barryexperiments contributed substantially
during the stage
Fourth stage(1976-1980)-
This was the period of decline in the areas of
HRA
Fifth stage(1980 onwards)-
There was a sudden renewal of interest inthe field of HRA
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Provide cost value information about
acquiring, development ,allocating and
maintain HR
Enable management to effectively monitor
the use of HR
Find whether human asset is appreciating or
depreciating over a period of time
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Assist in the development of effective
management practices
To motivate individual persons in the
organization to increase their worth by
training
To provide qualitative information on human
resources. (HR)
To know whether the human resources havebeen properly utilized and allocated.
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Put in its simplest form, the main purpose
of an HR accounting is to find out how effecti
ve and efficient the organization's HR activit
ies are, to determine areas for improvementand identify changes.
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As a political tool, used to demonstratemismanagement of human resource
As a pedagogical instrument for analyzing
and structuring
As a decision making aid to ensure that
decision on hr are more rational from themanagement point of view
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Foresee the changes
Provides different methods of testing
Increase productivity
Brings high return
Helps individual employee to aspire
Provides scope for advancement
Throws light on the strength and weaknesses of theexisting workforce
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Not easy to value human asset
Results in dehumanizing human resource
No evidence
HR is full of measurement problem
Employees and unions may not like the ideas
Unrealistic
Lack of empirical evidence
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Peop le are valuable organizat ional
resource
Human resource value is inf luenced bymanagement sty le
HRA inform ation is needed
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Infosys was the first software company to value itshuman resources in 1995-96
The company valued its human resources to Rs 1.86billion.
HRA is very essential for any knowledge intensive
company.
Slowly the concept gained importance and companieslike satyam computers, and even manufacturingfirms like Reliance industries started adopting it.
The assets could be classified into tangibles andintangibles. Human resources was an intangibleasset which involved capabilities, knowledge, skills,and talents of the employees in the company.
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In HRA cost was assigned to every employee
when recruited and revenue generated by
him/her during the tenure in the company.
HRA measured the performance of all the
people in the organization and this
information was made available to all thestake holders to help them make critical
investment decisions.
The companies started realizing that humancapital was now an investment for future
earnings and not expenditure.
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A) Cost Based Model-
Historical Cost Model
Replacement Cost Model
Opportunity Cost Model Competitive
bidding model
Standard Cost Model- Standardizing cost for
class of employees.
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B) Economic Models
Goodwill Method HR Value= Goodwill * amtinvested in HR/ Total Investment
Behavioral Model
Lev & Schwartz Model
Jaggy & Lau Method
Myers & Flowers Method- Employees Value =
Employees Attitude index* wages payable to
employee
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Infosys HRA model was based on the present value ofemployees future earnings.
It had the following assumptions:
Employees salary package included all benefits, direct orindirect, earned both in India and foreign nations
The additional earnings on the basis of age and was alsotaken into account.
All the employees were divided into 5 groups based ontheir average age
Each group compensation was calculated (including the
compensation at retirement)
Total compensation of each group was calculated.
Sum of all values discounted at 27.36% ( cost of human
capital) came to Rs 1.86 billion.
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The employee costs remained almost the same.
Increase in value addition
Net profits increased by more than 150%.
Value of human resources per employee increased
significantly
Information on absenteeism and employee turnover rate
Compensation could be decided upon the worth of the
employee.
Provided vital information for strategic human resource
management Easier for share holders to make investment decisions
Helped to calculate the value of the organization whose
intangible assets are more than the tangible assets.
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The companies act 1956, did not have a provision
for inclusion of human assets in financialstatements. In what form and manner, their value to be
included in the financial statement is the questionyet to be classified on which there is no consensusin the accounting profession.
As human resources are not capable of beingowned, retained and utilized, unlike the physicalassets, there is problem for the management totreat them as assets in the strict sense.
There is constant fear of opposition from the
trade unions as placing a value on employeeswould make them claim rewards andcompensations based on such valuation.
There is no universally accepted method of humanasset valuation.
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