HUMAN RESOURCE

ACCOUNTING

GROUP MEMBERS
RAHUL KUMAR
UMESH KUMAR RAI
ROSY BASUMATARY

Roll No: 39
Roll No: 49
Roll No: 40

NEED FOR HRA

DEVELOPMENT OF HRA
William petty(1991) made first attempt to
value human beings in monetary terms.
Labour as the father of wealth and it must
be taken into account while making an
estimate of wealth.

HRA
It is the art of valuing, recording and presenting
systematically the worth of human resources in
the book of account of an organisation. It reveals
following characteristics Valuing the human resources of a company in a
systematic way
Recording the valuation in the book of accounts
Presenting the information in the financial
statements of the business

DEFINITION
Human resource accounting is the process of identifying and
measuring data about human resources and communicating this
information to interested parties.
-by American Accounting Society Committee on HRA
Human resource accounting is accounting for people as an
organisation resource. It involves measuring the costs incurred by
business firms and other organisations to recruit, select, hire, train
and develop human assets. It also includes measuring the
economic value of people to organisations
-by Flamhoiltz

OBJECTIVES
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.

METHODS OF HRA
1.
2.
3.
4.
5.

Historical Cost Method.

Replacement Cost Method.
Opportunity Cost Method.
Return On Efforts Employed Method.
Reward Valuation Method.

HISTORICAL COST
METHOD
This method developed by Brummet,
Flamholtz and Pyle.

This method the actual cost incurred on

recruiting, selecting, placing & developing.

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.

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.

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

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.

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.

OPPORTUNITY COST
METHOD
This method was advocated by Hc Kiman and
Jones who suggested the use of opportunity cost
method which determine the value of human
resource on the basis of an employees 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.

ADVANTAGES
This method ensures optional allocation of
human resources.

It provides a quantitative base for

planning, evaluating and developing
human resources of an organization.

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.

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.

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

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.

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:- Estimation of employees service life.
-Identification of set of service states (roles)
-Estimation of employees service state (roles)
at specified future times.

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.

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.

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

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.

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.

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.

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.

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

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

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.

BALANCE SHEET

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.

DISADVANTAGES OF HRA
The valuation of human assets is based on
assumptions
Tax laws doesn't recognize human beings as assets.
Hence HRA remains merely as theoritical concept.
No standards of HRA
Employee with a comparatively low value may feel
discouraged.

Thanks..
!