This model is developed by Lev and. This is not a very objective method and therefore is only used for internal reporting. Argument in Favour of Human Resource Accounting: The various arguments favouring human resource accounting are: 1. HRA also evaluates the present economic value of the employees. this method, valuation on the basis of opportunity cost is restricted to The consequences of the current accounting practice relating to human resources are multidimensional. This model was suggested by Morse (1973). Learn about:- 1. (1971).
This method is the only method of Human Resource Accounting that is based on sound accounting principles and policies.[opinion]. Expenses relating to the human organisation are charged to current revenue instead of being treated as investments to be amortized over the economic service life, with the result that the magnitude of net income is significantly distorted. This is the most commonly used method for HRA used by most companies in India. The payments made to them in the form of pay, allowances, benefits, etc., are estimated and then discounted appropriately to arrive at the present economic value of the individuals. These methods are based on cost or economic value of human resources. specifically excluded from its preview the employees scarce or not being
Similarly, the economic value of human resources is the present worth of the services that they are likely to render in future. Over 10 million scientific documents at your fingertips. Weightless wealth: Four modifications to standard IC theory. Positional replacement costs are the costs incurred to replace the set of services rendered by an employee in a particular position.
ii. 1. Present Practice and Consequences 15. Human Resource Accounting: Past, Present and Future. This takes into account the position the employee is currently holding as well as the future positions expected to be held by him. The reasons and consequent scenario of human resource accounting should not be taken to mean that human resource accounting does not exist in India. Such information is essential for performing the critical HR functions of acquiring, developing, allocating, conserving, utilizing, evaluating and rewarding in a proper way. Types 7. Some of the limitations to human resource accounting are: 1. However, some companies like Bharat Heavy Electricals Ltd (BHEL), Steel Authority of India Ltd. (SAIL), Oil and Natural Gas Commission (ONGC), etc. However, implementation of all this approach poses the following problems: i. At the organizational level, intellectual capital consists of both the stock of knowledge, skills, and expertise that members of the organization collectively possess, and the knowledge and expertise that may be embedded in or owned by the organization including patents, information technology based knowledge systems, or specialized processes of work. Accountancy is to justify the obvious violation of the “accrual principle” on grounds to adhere to the “principle of conservation.” They argue that one is never sure about the realisation of future benefits from such expenses due to uncertainty of the tenure of an employee. (iv) Opportunity Cost. Likert, R., Bowers, D. G., & Norman, R. M. (1969). M’Pherson, P. K., & Pike, S. (2001). (ii) Expected realizable value- The expected realizable value depends upon the expected conditional value of an employee and the probability that the individual will remain in the organization for the duration of his productive work life. iv. TOS 7.
In a sense, this method is inconsistent with the ‘historical cost method’. (2001). Terms of Service 7.
It is derived from the network of relationships, both internally and externally.
While calculating the current value of the individual, the present cumulative value of all the possible services that may be rendered by him during his tenure with the organization is taken.
Rensis Likert first developed this approach based on the concept of the replacement cost. They have advocated the use of “cost of capital” rate for the purpose of discounting the future earnings of the employees for arriving at their present value. A few more organisations like Minerals and Metals Trading Corporation of India, Southern Petrochemical Industries Corporation. First one is based on the cost i.e., cost incurred by the enterprise to recruit, hire, train and development of employees.
The process of giving a status of asset to the expenditure item is called capitalization.
Cascio, Wayne F. Costing Human Resources: The Financial Impact of Behavior in Organizations, 3rd ed. It may be mentioned that many companies in IT and BPO Sector have change hand in India. According to this method, future earnings of employees are estimated upto the age of retirement and are discounted at a rate appropriate to the person or the group to obtain the present value.
Human Resource accounting (HRA) denotes this process of quantification/measurement of the Human Resource. Emotionality is one of the five big personality dimensions that affect job performance. On the other hand, some items of capital nature involving relatively small amounts, are treated as “revenue items” as a compliance with the “principle of materiality”. (v) The human capital cannot be purchased or owned by the firm and it would not be recognised as asset. In the opinion of Flamholtz the value of human resource involves two forms of replacement cost-- Individual Replacement Cost and … The human resource process was established to fulfill a number of objectives within the organization. The average age of the Infosys employees stood at 26 years in FY07, the same as in the previous years. So far as valuation of human resources is concerned, only stray attempts have been made.
However, they do not favour periodic valuation of goodwill and its disclosure in balance sheet as part of the regular valuation process. Under this method, the elements of expected realisable value of employee are measured through behavioural measures.
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