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Human Resources accounting, also known as Human Asset Accounting, involved identifying, measuring, capturing, tracking and analyzing the potential of the human resources of a company and communicating the resultant information to the stakeholders of the company. It was a method by which a cost was assigned to every employee when recruited, and the value that the employee would generate in the future. Human Resource accounting reflected the potential of the human resources of an organization in monetary terms, in its financial statements.
Why HRA?
It furnishes cost/value information for making management decisions about acquiring, allocating, developing, and maintaining human resources in order to attain costeffectiveness; It allows management personnel to monitor effectively the use of human resources; It provides a sound and effective basis of human asset control, that is, whether the asset is appreciated, depleted or conserved; It helps in the development of management principles by classifying the financial consequences of various practices.
* If there is any change in the structure of manpower, it is HRA which provides information on it to the management.
* HRA provides qualitative information & also assess the cost incurred in personnel.
* It gives a platform to the management by providing factors for better decision-making for future investment.
* The return on Investment on human capital is best evaluated through HRA.
* HRA communicates to the organization & public about the worth of human resources & also its proper allocation within the organization.
* HR helps the management in developing principles by classifying the financial consequences of the various practices.
The cost of recruitment, selection, development are all capitalized and amortized over the useful life time of the employee. This amortization may be dealt according to the situation. Benefits: Easy to operate, Conforms with the matching principle, Similar to the treatment of other fixed assets Shortcomings: Estimation of the useful life time may not be easy, The value of humans are generally increasing over time - but this method gives a declining picture, This method doesnt actually measure the value but undermines it
The cost to replace the existing human resources are estimated. All costs incurred to attain the current level of competence of an existing employee. Created from scratch Benefits: Is present/ future oriented Disadvantage: Not always possible to obtain such a measure (identical replacement), It is hence subjective
Investment pattern
The human resource investment usually consists of the following items:1) Expenditure on advertisement for recruitment 2) Cost of selection 3) Training cost 4) On the job training cost 5) Subsistence allowance 6) Contribution to provident Fund 7) Educational tour expenses 8) Medical expenses 9) Ex-gratia payments 10) Employees Welfare Fund All these items influence directly or indirectly the human resources and the productivity of the organization.
Hra in india
Though Human Resources Accounting was introduced way back in the 1980s, it started gaining popularity in India after it was adopted and popularized by NLC. Even though the situation prevails, yet, a growing trend towards the measurement and reporting of human resources particularly in public sector is noticeable during the past few years. BHEL, Cement Corporation of India, ONGC, Engineers India Ltd., National Thermal Corporation, Minerals and Metals Trading Corporation, Madras Refineries, Oil India Ltd., Associated Cement Companies, SPIC, Metallurgical and Engineering consultants India Limited, Cochin Refineries Ltd. Etc. are some of the organizations, which have started disclosing some valuable information regarding human resources in their financial statements. It is needless to mention here that, the importance of human resources in business organization as productive resources was by and large ignored by the accountants until two decades ago.
conclusion
Thank You