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RIMT-REGIONAL Submitted to : submitted by: mr. deepak sood SHIPRA AGGARWAL VARTIKA GOEL



Human Resource Accounting is, ”the process of identifying and measuring data about human resource and communicating this information to interested parties.” -American Accounting Association Committee :

Human Resource Accounting is, ”the process of identifying and measuring data about human resource and communicating this information to interested parties.” - American Accounting Association Committee Definition of H.R.a



Historical Development Of H.R. Accounting :

Historical Development Of H.R. Accounting 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

Cont.. :

Cont.. Third stage(1971-1976)- This period was marked by a widespread interest in the field of HR R.G. Barry experiments 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 in the field of HRA

Objectives of HRA :

Objectives of HRA 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

Objectives cont..:

Objectives cont.. Assist in the development of effective management practices To motivate individual persons in the organization to increase their worth by training In planning physical resource vice-versa hr by giving valuable information

Purpose of HRA :

Purpose of HRA Use of resources to achieve the immediate and long run goals of the organization Traditional accounting involves treatment of human capital and non-human capital differently Conventional treatment on human resource

Uses of HRA :

Uses of HRA Acc to Grojer and Johanson As a political tool, used to demonstrate mismanagement 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 the management point of view

Advantages of HRA :

Advantages of HRA 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 the existing workforce

Methods Of HRA :

Methods Of HRA Cost approach Economic value approach


COST APPROACH IN HRA HISTORICAL COST OPPORTUNITY COST REPLACEMENT COST The historical cost of human resources is the sacrifice that was made to acquire and develop the resource a calculation of what would have been the returns if the money spent on HR was spent on something else the cost that would have to be incurred if present employees are to be replaced.


ECONOMIC VALUE APPROACH PRESENT VALUE OF FUTURE EARNINGS COMPETITIVE BIDDING MODEL IND.VALUE TO ORGANIZATION value of an individual is the present worth of the services that he is likely to render to the organization in future an internal market for labor is developed and the value of the employees is determined by the managers. Managers bid against each other for human resources already available within the organization. The highest bidder ‘wins’ the resource. This method helps in determining what an employee’s future contribution is worth today.

Monetary value based approaches::

Monetary value based approaches: i) The Lev and Schwartz Model ii) The Eric Flamholtz Model iii) Morse Model

The Lev and Schwartz Model(1971):

The Lev and Schwartz Model(1971) According to this model, the value of human resources is ascertained as follows – 1. All employees are classified in specific groups according to their age and skill. 2. Average annual earnings are determined for various ranges of age. 3. The total earnings which each group will get upto retirement age are calculated. 4. The total earnings calculated as above are discounted at the rate of cost of capital. The value thus arrived at will be the value of human resources/assets. 5. The following formula has been suggested for calculating the value of an employee according to this model –

CONT.. Vr = ÓTt=r I(t)/(1+r)t-r,  Where, V = the value of an individual “r“years old. I(t)  = the individual’s annual earnings upto the retirement t = retirement age r = present age of the employee R = discount rate:

CONT.. Vr = ÓTt =r I(t)/(1+r)t-r , Where, V = the value of an individual “ r“years old. I(t) = the individual’s annual earnings upto the retirement t = retirement age r = present age of the employee R = discount rate

Flamholtz Model (Reward Valuation method) (1971).:

Flamholtz Model (Reward Valuation method) (1971). This is an improvement on ‘ present value of future earnings model’ since it takes into consideration the possibility or probability of an employee’s movement from one role to another in his career and also of his leaving the firm earlier, that his death or retirement.


Cont.. The model suggests a five steps approach for assessing the value of an individual to the organisation : 1. Forecasting the period will remain in the organisation, i.e., his expected service life; 2. Identifying the services states, i.e., the roles that the might occupy including, of course, the time at which he will leave organisation; 3. Estimating the value derived by the organisation when a person occupies a particular position for a specified time period; 4. Estimation of the probability of occupying each possible mutually exclusive state at specified future times; and 5. Discounting the value at a predetermined rate to get the present value of human resources.


MORSE MODEL (1973) Under it the value of human resources is equivalent to the present value of the net benefits derived by the enterprise from the service of its employees. The following steps are involved under this approach: 1. The gross value of the services to be rendered in future by the employees in their individual and collective capacity. 2. The value of direct and indirect future payments to the employees is determined. 3. The excess of the value of future human resources (as per (1) above) over the value of future payments (as per (2) above) is ascertained. This represents the net benefit to the enterprise because of human resources.

Non- monetary value -based approaches::

Non- monetary value -based approaches: i ) Likert Model ii) Ogan Model


LIKERT’S MODEL (1960) Rensis Likert in the 1960s was the first to research in HR and emphasized the importance of strong pressures on the HR's qualitative variables and on its benefits in the long-run. According to Likert's model, human variable scan be divided into three categories: (i) causal variables; (ii) intervening variables; and (iii) end-result variables. The interaction between the causal and intervening variables affect the end-result variables by way of job satisfaction,costs, productivity and earnings


OGAN’S MODEL Pekin Ogan (1976) has given Net benefit model. This, as a matter of fact, is an extension of “net benefit approach” as suggested by Morse. According to this approach, the certainty with which the net benefits in future will accrue should also be taken into account, while determining the value of human resources. The approach requires determination of the following: Net benefit from each employee. Certainty factor at which the benefits will be available. The net benefits from all employees multiplied by their certainty factor will give certainty-equivalent net benefits. This will be the value of human resources of the organization.

Limitations :

Limitations 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

Assumptions Underlying HR Accounting   :

Assumptions Underlying HR Accounting People are valuable organizational resource Human resource value is influenced by management style HRA information is needed



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