HUMAN RESOURCE ACCOUNTING

Presented By:Anika Munjal Harsh Bajpayee Shresht Badola Vidit Chawla Prateek Gupta

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MEANING OF HUMAN RESOURCE :

often abbreviated to the initials HR individuals who make up the workforce of an organisation responsible for implementing strategies and policies relating to the management of individuals

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MEANING OF HR ACCOUNTING:
In general terms, it can be defined as

To record, report and analyze human resource related figure through accounting system

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DEFINITION OF HR ACCOUNTING:
According to Committee on Human Resource Accounting of the American Accounting Association, the process of identifying and measuring data about human resources and communicating this information to interested parties.

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WHY HUMAN RESOURCE ACCOUNTING:

because collectivity of people happens to be the key to organizational efficiency and effectiveness it is the organized group of human beings that determines the quality of dayto-day performance as well as the growth and prosperity of the firm.

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OBJECTIVES OF HR ACCOUNTING:
to help management in planning and controlling the use of human resources effectively and efficiently to improve the quality of financial decisions of management to help the investors in decision-making to increase productivity to improve employee performance and attitude to increase Profitability

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HISTORY
Agrarian era

Land

Machinery

Knowledge era

Industrial era

Human Capital

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The human resource investment usually consists of the following items:1) Expenditure on advertisement for recruitment 2) Cost of selection 3) Training cost 4) On the job training cost 5) Subsistence allowance 6) Contribution to provident Fund 7) Educational tour expenses 8) Medical expenses 9) Ex-gratia payments 10) Employees Welfare Fund

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APPROACHES TO VALUATION :
MONETARY MEASURES
Historical cost of acquisition

NON-MONETARY MEASURES

Expected realizable value based on skill

Replacement cost Opportunity cost Economic value Stochastic Rewards value

Discounted present value of future wages and salaries

Discounted net present value of future earnings

Value of employees based on attitude scores

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CALCULATION OF HUMAN CAPITAL VALUE

Value of employee =
Employees annual earning up to retirement / ( retirement age + discount ) power( t+r ) = Rs.1000000 / (60+10) power 60 age+10rate

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WAY OF SHOWING HR IN BALANCE SHEET

Liability side HR capital Rs.4000000 Assets side HR asset Rs. 4000000

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Present accounting system ignores the importance of human resource value

Generally Accepted Accounting Principle(GAAP) treats most human capital related costs as expenses, instead of assets The more the company invests in human capital, the less the current net income Revenue-Expense(including HR)=Net Income

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ADVANTAGES :
By adopting and implementing HRA in an organization, the following important information could be obtained: Cost per employee Human capital investment ratio The amount of wealth created by each employee The profit created by each employee The ratio of salary paid to the total revenue generated Average salary of each employee Employee absenteeism rates Employee turnover rate and retention rate

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LIMITATION : Hard to find specific human resource data Case study rather than general study

No specific rule made till date

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HR ACCOUNTING USED IN INDIA :

INFOSYS BPL BHEL Cement Corporation of India, ONGC, Engineers India Ltd, National Thermal Corporation, Minerals and Metals Trading Corporation, Madras Refineries, Oil India Ltd, Associated Cement Companies, SPIC, Metallurgical and Engineering consultants India Limited, Cochin Refineries Ltd. Etc.

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CASE STUDY : INFOSYS HR ACCOUNTING

First software company to value its human resources in India. The company used the Lev & Schwartz Model and valued its human resources assets at Rs 1.86 billion.

Infosys' HRA model was based on the present value of the employees' future earnings with the following assumptions: An employee's salary package included all benefits, whether direct or otherwise, earned both in India and in a foreign nation. The additional earnings on the basis of age and group were also taken into account. To calculate the value of its human assets in 1995-96, all the 1,172 employees of Infosys were divided into five groups, based on their average age. Each group's average compensation was calculated. Infosys also calculated the compensation of each employee at retirement by using an average rate of increment

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CONCLUSION :

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THANK YOU
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