Human Resources Accounting

Introduction
Human Resource Accounting (HRA) is similar in principle to
the preparation of an accounting statement. just as financial
accounting reflect the cost of assets such as building , land,
machinery, HRA tries to place a value on an organization human
resource by formulating a human resource balance sheet.
 Advantages of HRA
I. It through light on the strengths and weaknesses of the
existing workforce in an organization.
II. It provide valuable feedback to managers regarding the
effectiveness of HR policies and practices.
III. It help to potential investors judge a company better on the
strength of the human assets utilized therein.
IV. It help in management in taking appropriate decision
regarding the use of human assets in an organization.
 Objective of HRA
According to Likert, the objective of HRA are:
Provide cost value information about acquiring, developing , allocating, and
maintaining human resources so as to meet organizational goals.
Enable management to effective motive the use of human resources.
Find whether human assets are appreciating or depreciating over a period
of time.
Asset in the development of effective management practices by classifying
the financial consequences of various practices.
 Limitation of HRA
I. It is not easy to value the human assets in an organization.
II. HRA is full of measurement problems.
III. Employees and unions may not like the ideas.
IV. There is no empirical evidence to support the idea that HRA is an
effective tool to measure the economic value of people to the
organization.
 Approaches to HRA
Monetary Measure

 Historical cost method: in this method, all the cost of recruitment,

training, and other cost involved in developing an employee are
capitalized.
 Replacement cost method: it is the cost of replacing a set of services
provided by one person with equivalent set of services provided by
another.
 Opportunity cost method: in this approach, all the manager within
an organization will be encouraged to bid for any scarce employee
they want and the one who
is able to acquire his service puts the bid price as his investment base
in respect of that employee.
 Economic value method: in this method human resource are valued
on the basis of the contribution they are likely to make to the
organization during their continuance in the organization.
 Cntd..
Asset multiplier method: in this method the employees working in
organization are classified into four categories:
1.top management,
2.middle management,
3.supervisory management,
4. operative and clerical staff.
Discounted present value of future earning method: the method involves
three steps
1. employee are classified into homogeneous group,
2. earning of each group are estimated, and
3. the present value of earning of each group till retirement is taken
as the value of human resource, using an
appropriate discounting rate.
 Non-monetary Measure
 Expected realizable value method: the elements of expected realizable
value such as productivity, transferability and promotability can be
measured through personnel research, appraisal techniques and other
objective method.

 Discounted net present value of future earning:

 Controlling Cost Manpower
I. Management by objective(MBO):
II. Ratio analysis:
a. Cost of recruitment:
Cost of recruitment
cost per hire(in Rs)=
No. of recruiters hired/retained
b. cost turnover rate:

No. of separations
Turnover Rate(in%)= *100
Average strength of employee
Cntd..
Cost of Training:
Training costs
1.cost of training per trainee=
No. of employee trained

Training cost s
2. Cost of training per employee=
No. of employees
 Cntd..
No. of Training
3. Training ratio =
No. of employees

IV. Personnel productivity : productivity is the ratio of an organization's

outputs(goods and services) to its output(physical financial and human
resource).
V. Personal reports budgets and audit : personnel budgets in key areas
such as compensation, training, employee benefits, etc.