Institute of management studies

Devi Ahilya Vishwavidyalaya, Indore (M.P.)

M.B.A. (MARKETING MANAGEMENT)

2 YEARS (2021-23) - 1 ST SEM
SECTION – “B”

ASSIGNMENT (Business Accounting)

Submitted To: Submitted By:

Dr. N.K. Totala Sir Sharad Kumar Rathore

 Human Resources Accounting

Human resources are considered as important assets and are different from the physical
assets. Physi­cal assets do not have feelings and emotions, whereas human assets are
subjected to various types of feelings and emotions. In the same way, unlike physical
assets human assets never gets depreciated.
Therefore, the valuations of human resources along with other
assets are also required in order to find out the total cost of an organization. In 1960s,
Rensis Likert along with other social researchers made an attempt to define the concept
of human resource accounting (HRA).

‘HRA is a process of identifying and measuring data about human

resources and communicating this information to interested parties’.
Basic premises of HRA

• People are valuable resources of an

organization.

• Usefulnes of manpower is
determined by the way it is
managed.

• Information on investment and

value is human resource is useful
for decision making.
 Objectives of HRA

1. Providing cost value information about acquiring, developing, allocating and maintaining
human resources.

2. Enabling management to monitor the use of human resources.

3. Finding depreciation or appreciation among human resources.

4. Assisting in developing effective management practices.

5. Increasing managerial awareness of the value of human resources.

6. For better human resource planning.

7. For better decisions about people, based on improved information system.

8. Assisting in effective utilization of manpower.

 Advantages of HRA
• Information of manpower planning- It provides useful information about the cost and value of the human resource.
Which helps in manpower planning.

• Information for making personnel policies- Human resource accounting provides useful information that helps to
create and implement personnel policies. personnel are the people who are working in the organization.

• Utilization of human resources– The efficient and effective utilization of human resources is necessary for the success
of the business. Human resource accounting gives the data for proper Utilisation of human resources.

• Proper placement– Human resource accounting provides data that helps to select the right person for the right job.
Previous experience of the personnel and their behavior are responsible for there placement

• Increase Morale and motivation- It helps the management for the beneficiary policies of workers and employees.

• Attract best human resource – Human resource accounting helps to attract for the recruitment of the best quality of
skilled personnel for the organization.
 Limitations of HRA
 No Clear-Cut Guidelines
Human resource accounting lacks clear cut guidelines on how to differentiate the ‘cost’ and
‘value’ of human resources.
 Measurement Problems
Another major drawback in accounting of human resource is the presence of numerous
measurement problems. 
 Absence Of Standardized Procedure
The human resource accounting does not have any standardized procedure of valuation.
 Dehumanize Human Resources
The valuation of human resources may result in dehumanizing and manipulating the employees. 
 No Evidence
There is no proper empirical evidence available till yet to prove the utility of HRA
 Cost of Human Resource

 Acquisition cost

 Training and development cost

 Welfare cost

 Other cost
 Acquisition Cost

It refers to the cost incurred in acquiring the right man for the right job
at the right time in a right quantity.

 Recruitment cost

 Selection cost

 Placement cost
 Training and Development Cost

It refers to the sacrifice that must be made to train person either to

provide expected level of performance or to enrich individual skills.

 Formal training cost

 On the job training cost

 Special training cost

 Development cost
 Welfare Cost

 Welfare amenities within the organization

 Welfare outside the organization

 Other Costs

 Health of workers

 Safety of workers

 Welfare of workers
Methods
 Historial cost method

 Under the Historical cost method, the sum total of all the costs
related to human resources is calculated to find out the value of a
human resource. These costs include the cost of recruitment,
selection, training, placement, and development of human resources
of an organization.

 Historical Cost Method was introduced by Brummet, Flamholtz and

Pyle. This is the oldest method of valuation of human resource.
 Types of Historical Cost Method

1. Acquisition cost: It means the cost which is incurred on acquiring the human
resource in the organization. The cost incurred at the time of recruitment,
selection and placement ect.

2. Learning Cost: It means that cost is incurred at the time of providing

training and development to the employees and managers.
 Replacement Cost Method

 Replacement cost is that cost which is incurred on replacing the existing human
resource by an identical one i.e. human resource capable of rendering similar
services.
 Replacement Cost Method was introduced by Rensis Likert and Eric G.
Flamholtz. This method is different from the historical cost method.

The historical method takes into account only the sunk cost which is immaterial
to calculate the value of human resources and take a decision on that basis.

The replacement cost method is very realistic as it considers the current value of
human resources in its financial statement.
 Present Value Method and Economic Value Method

 Present value method, the future earnings of the employees are estimated up to the
retirement period and is discounted at a discount rate which is usually the cost of capital.

 Economic value method present worth of the employee is calculated on the basis of the
future service that is expected from him till his retirement.

 Under this methods value of a human resource is calculated on the basis of the
contribution made by the employees in the organization till their retirement. The
payment due to the employees in the form of pay, allowance, and benefit etc. are
estimated and then discounted to arrive at a present economic value of the individual.
 Asset Multiplier Method
 Asset Multiplier Methods consider that there is no direct relationship between the cost
incurred on human resource and how much value he is for the organization. The value of
human resources depends on various factors like the level of motivation and employee attitude
towards work and the organization.

 Here multiplier refers to instruments that relate personal worth of human resource to the total
asset value of the organization.

 Employees of the organization are divided into four categories under this method namely
• Top management
• Middle management
• Supervisor
• Clerical employees.
Asset Multiplier reflects the following factors:-

1. Technical, qualification and experience of employees.

2. Experience required for the job.

3. Personal qualities and attitude.

4. Loyalty and expectation of future services.

Thank You !!!