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Introduction
To ensure growth and development of any organisation, the efficiency of people must be augmented in the right perspective. Without human resources, the other resources cannot be operationally effective. The original health of the organization is indicated by the human behaviour variables, like group loyalty, skill, motivation and capacity for effective interaction, communication and decision making. Men, materials, machines, money and methods are the resources required for an organization. These resources are broadly classified into two categories, animate inanimate
The following are the reasons why Human Resources Accounting has been receiving so much attention in the recent years.
Firstly, there is genuine need for reliable and complete management of human resources.
Secondly, a traditional framework of Accounting is in the process to include a much broader set of measurement than was possible in the past.
Sir William Petty was the pioneer in this direction. The first attempt to value the human beings in monetary terms was made by him in 1691. Petty considered that labour was the father of wealth and it must be included in any estimate of national wealth without fail.
Further efforts were made by William Far in 1853, Earnest Engle in 1883 As a result, accountants and economists realized the fact that an appropriate methodology has to be developed for finding the cost and value of the people to the organization.
Importance of HRA
HRA helps the management in the Employment, locating and utilization of human resources. Helps in deciding the transfers, promotion, training & retrenchment of HR
It assists in evaluating the expenditure incurred for imparting further education and training in employees in terms of the benefits derived by firm. It helps to identify the causes of high labour turnover at various levels and taking preventive measures to contain it.
Cont.
It provides valuable information for persons interested in making long term investment in the firm.
It helps in locating the real cause for low return on investment, like improper or under-utilization of physical assets or human resource or both. It helps employees in improving their performance and bargaining power. It makes each of them to understand his contribution towards the betterment of the firm the expenditure incurred by the firm on him.
Cost Approach
Also called as acquisition cost model. This approach is developed by Brummet, Flamholmay tz and Pyle. This method measures the organizations investment in employees using the five parameters: recruiting, acquisition; formal training and familiarization; informal training, Informal familiarization; experience and development
This approach measures the cost of replacing an employee. According to Likert (1985) replacement cost include recruitment selection compensation training cost The data derived from this method could be useful in deciding whether to dismiss or replace the staff.
Limitations Substitution of replacement cost method for historical cost method does little more than update the valuation, at the expense of importing considerably more subjectivity into the measure. This method may also lead to an upwardly biased estimate because an inefficient firm may incur greater cost to replace an employee
Cont.
According to this model, the value of human capital embodied in a person who is y years old, is the present value of his/her future earnings from employment and can be calculated by using the following formula:
E(Vy) = Py(t+1) I(T)/(I+R)t-y
where E (Vy) = expected value of a y year old persons human capital T = the persons retirement age Py (t) = probability of the person leaving the organisation I(t) = expected earnings of the person in period I R = discount rate