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Human resource accounting

Introduction
In any business, 5 ms are very important i.e. men, material, machine, money and methods considered the situation where any industry is using excellent machine, material and has good potential market using good methods but does not have competent well trained, qualified men. Then, no doubt, its business will not thrive. Human resource accounting literally means the accounting for people us an organizational resource. The basis premises underlying that HRA mean. People are valuable resources of an enterprise. The usefulness of man power as an organizational resource is determined by the way in which it is manager. Information on investment and the value of human resources is useful for decision making in the enterprise.

Meaning
Human resource is nothing but the summation of skills, quality, knowledge, innovation, thinking, creativity, intuition and experience possessed by all people. In management, we always says that there should be the right person at the right place Human resources accounting means as the process of measuring, identifying and communicating information about human resources, in order to facilitate effecting management. It is an extension of the accounting principles of matching costs and revenue and organizing data to communicate relevant information in financial terms. HRA focuses on the following aspects. Human resource valuation this valuation is to be recorded in the books of account Disclosure of information in financial statement and This information can be used as tool for decision making.

Objectives
Monitoring the effective utilization of human resources by Analysis of human assets whether they are being correctly Giving proper information about human resource for decision organization appreciated or depreciated properly. making like accruing allocate, developing and maintaining HR for achieving cost effectiveness to be used as decision making tool for future development, training Recording and disclosing values of HR in financial statement. To provide information to all people concerned recording the To assess the efficiency of HR or retrenchment of HRE

earning potential of HR of the organization.

Important
HRA gives information about contribution made by employees towards the betterment of firm and expenditure incurred by the organization on employees. In helps in training, transfer, retrenchment of HR Success of any organization depends not only upon assets owned by them but also on effective HR of organization. It helps in identifying the expenditure ade for training and development of HR benefits resulting for the organization. It can help in finding out the low rate ROI, may be due to under utilization of the physical assets or HR or both

The HRA ROI Integration


ROI can be used as a very good performance measure. The index of which is calculated as follows Conventional profit + changes in HR + conventional asset + Human asset In our traditional accounting practices, the huge amount incurred on recruitment, selection, placement, training and development of the personnel is generally treated as revenue expenditure and hence, debited to profit and loss account of the period during which such expenditure is incurred. Today it is augured that this expenditure incurred by an enterprise to get benefit of the service of its man power force in future is against the accounting principle of treating them completely from the revenue perspective. In fact, such expenditure should be capitalized and shown in the balance sheet. The concepts of HRA was evolved which emphasized that HR should be treated like physical assets and shown in the balance sheet of the enterprise.

Benefit
The investor can also assets the return on human capital, which is the essence of return they are getting from the people who are managing their wealth/ Investment. firm. IT provides the feeling comfort to company employees that they are Acts as a future tool for better performance appraisal and work force assets of the firm not liability assessment HRA indicates fair disclosure about the key components for the

Challenges
Though human capital plays an important role in any organization, Proper matching of costs with revenue is not possible. Quantification and pricing of employees with respect to jobs do not Publishing HR data would also have an adverse impact and moral of there is widespread disagreement regarding the recognition as assets

yield any physical output. the employees whose resource value are declining these employees may leave the organization. Knowledge of individual HR would also affect employees bargaining power, both with and outside the company.

Application of HR in India
In India, the companies Act 1956 had laid down provision for the preparation of financial statement for companies registered under the act. As per the section companies have to prepare financial statement like balance sheet, profit & loss a/c. In this statement there is no provision for disclosure of information of human resources. If a company wants to show the value of its HR in its financial statements companies act doesnt stop them, but this information has to be given by way of additional statement along with financial statement Some of the companies who are presently incorporation the HR in their annual reports along with financial statements are Bharat Heavy electrical (BHEL), National Thermal power corporations (NTPC), Oil and national gas commission (ONGC), Steel authority of India ltd (SAIL), Cement corporation of India ltd (CCI) The minerals and meal trading corporation of India (MMTC) Engineers India ltd ( EIL) Project & Equity corporation of India ltd ( PECI)

Electronics India ltd Hindustan Shipyard ltd TATA engineering and locomotive works (TELCO) Associated cement company (ACC) Southern petro chemical Industrial Corporation.

Conclusion
So I can conclude that one can hope for a day when human capital will receive the same degree of recognition as other assets in accounting practice as well as the overall management paradigm. Presently the whole has identified and realized the importance of HRA. People are concentrating not only on the ROI, but also an ROK.

By S.Arthi. N.Nithiya. Department of BBA. G.Venkataswamy Naidu College(sfc) Kovilpatti.