HUMAN RESOURCE ACCOUNTING

Human resource accounting is the process of identifying and reporting investments made in the human resources of an organization.

In the conventional accounting system it is not accounted for.

Measuring the value of human resources can assist organizations in accurately assessing their assets.

Human resource is very costly. Its proper accounting is very much essential. Many times it is a big drain on expenditure. And CEO is not aware of it.

CEO must ask the questions like:

• What is the cost of recruiting a person
• What is the cost to company if a experienced hand leaves
• What is the cost of training
• What is the cost benefit analysis says of training
• What is the cost, if the staff trained but not posted suitably to utilize the staff effectively

The objectives of Human Resource Accounting

• To furnish cost implication of maintaining human resources with the company to the management
• Utilization and output of human resource to see and identify the under-utilized human resource if any
• The development of the human resource by identifying training needs of the resource to make it available for new challenges

Two Approaches of Human Resource Accounting:

• Cost Approach- it is human resource accounting method. We estimate human resource acquisition cost as well as the cost of replacement of human resourceThis method measures the total investment in Human Resource. The five parameters on which costing is based are:

1. Cost in recruiting
2. Cost in acquisition
3. Cost of training
4. Cost of Experience and development (Value addition to human resource done over the years)

The investment on human resource should be capitalized in the balance sheet. In human resource management, we amortize the capitalized amount. We take the age of employee at the time of recruitment and at the time of retirement.

Valuation of human resource is very difficult. This model is difficult to follow in case we recruit a person who is already trained.

We measure the cost of replacing an employee. Replacement cost includes recruitment, selection, compensation and training cost. This information is useful in deciding whether to dismiss or replace the staff.

• Value Approach- An economic valuation of employees is done based on the present value of future earning.

1. Present value of future salary is calculated.
2. The problem comes when employee quit
3. Lot of subjectivity is there in value estimation of an employee. There is no universally accepted method of the valuation of human resources.

The human resource accounting is gaining importance in service industry. The human resource is very critical in service sector.

The ratio of human capital to non-human capital indicates the degree of labour intensity of an organization.

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