1. What is Human Resource? The total knowledge, skills, creative abilities, talent, altitudes and belief of an organization workforces as well as values, altitude and belief of the individuals involved. Meaning of Human Resource Management: A process consisting of the acquisition, development, motivation, and maintenance of human resources. What is Human Resource? The total knowledge, skills, creative abilities, talent, altitudes and belief of an organization workforces as well as values, altitude and belief of the individuals involved. Meaning of Human Resource Management: A process consisting of the acquisition, development, motivation, and maintenance of human resources.

2. Meaning Of Human Resource Accounting Human resource accounting is defined as:  The art of valuing,  recording and  presenting systematically  the worth of human resources in the books of account of an organization. Human resource accounting is defined as:  The art of valuing,  recording and  presenting systematically  the worth of human resources in the books of account of an organization.

3. Characteristics Of HRA The following characteristics of HRA are: Its a system of accounting in which identification of human resources is made. Investment made in human resources is recorded. Measurement of costs and values are made. Changes occurring in human resources over a period of time are also recorded. Communicates information through financial statements to interested parties. The following characteristics of HRA are: Its a system of accounting in which identification of human resources is made. Investment made in human resources is recorded. Measurement of costs and values are made. Changes occurring in human resources over a period of time are also recorded. Communicates information through financial statements to interested parties.

4. Basic Premises Of HRA People are valuable resources of an enterprise. The usefulness of manpower as an organizational resources is determined by the way in which it is managed. Information on investment and value of the human resources is useful in the enterprise People are valuable resources of an enterprise. The usefulness of manpower as an organizational resources is determined by the way in which it is managed. Information on investment and value of the human resources is useful in the enterprise

5. Reasons For Emergence Of HRA 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. Human Resource Accounting is the measurement of the cost and value of people to the organization. It involves measuring costs incurred by the organizations to recruit, select, hire, train and develop employees and judge their economic value to the organization 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. Human Resource Accounting is the measurement of the cost and value of people to the organization. It involves measuring costs incurred by the organizations to recruit, select, hire, train and develop employees and judge their economic value to the organization

6. Need and significance of HRA The human resource accounting is more concerned with decision making area of accounting.

7. The information generated through HRA can help for making decisions in following areas:- Formulating policies and programmes for the development of human resources. Decisions regarding cost reduction programmes. Training and development. Recruitment and selection. Manpower planning and control. Conservation and reward of human resources. Making a choice between various type of human investment and investment in other assets.

8. Necessity of HR: Realizing this, many companies world-over are making HRA as a necessary element on their balance sheets. One of the best examples is of the Denmark Government. The Danish Ministry of Business and Industry has issued a directive that with effect from the trading year 2005, all companies registered in Denmark will be required to include in their annual reports information on customers, processes and human capital. A minimum of five measures for each is required, and comparison with the previous two years must be shown. Figures for investment in intellectual capital must be shown and compared with the previous two years. A narrative should accompany each set of figures. HR as an asset: In India, there are very few companies like BHEL, Infosys and Reliance Industries, which have implemented HRA and some are working on it.

9. Case study Hindustan Copper Limited (HCL), a public sectorenterprise of the Government of India, incorporated on 9th November 1967. It has the distinction of being India's only vertically integrated copper producing company encompassing mining, beneficiation, smelting, refining and casting of refined copper metal. The company deals in copper wire rod, copper cathodes, continuous copper rod and the byproducts such as copper sulphate and sulphuric acid. HCL is spread across four operative units; 1. Indian Copper Complex, Jharkhand 2. Malanjkhand Copper Project, Madhya Pradesh 3. Khetri Copper Complex, Rajasthan 4. Taloja Copper Project, Maharashtra

10. YearValue of produc tion (Rs.) Manpower (in Numbers) Value per employe e (Rs.) 2001-02586.6695020.062 2002-03501.5378650.064 2003-04534.4359950.089 2004-05631.2456650.111 2005-061053.3455830.189 2006-071909.1854510.350 2007-081991.2454050.368 2008-091344.2854400.247 2009-101506.0453000.284 THE HINDUSTAN COPPER LTD.

11. CONCLUSION However until now, the efforts are to be made in gaining popularity in the application of human resource accounting. The concept of human resource accounting is yet to gain momentum in India. For the betterment of the organizations, it is necessary to evaluate the worth of Human Resources in a systematic manner and record the information related to them in the financial statement of the organization to communicate their worth time to time to the users of the financial statement. The HRA concept itself represents a new way of thinking about people as assets. It has a great potential for future organization to understand the value of human forces and the same should mentioned in the financial statements.

12. Objectives of HRA EXAMINING EXPENDITURE ON PERSONNEL COMMUNICATE THE WORTH OF HUMAN RESOURCE PROVIDES QUANTITATIVE INFORMATION PROVIDES SOUND AND EFFECTIVE BASIS FOR QUALITY CONTROL HELPS IN CREATING GOODWILL

13. Advantages of HRA Information for manpower planning Information for making personnel policie Utilisation of human resources Proper placements Increases morale and motivation Attracts best human resources Valuable information to investors

14. Limitations of HRA Life of a human being is uncertain No specific and clear cut guidelines No standards for HRA Can lead to dehumanisation Assumption regarding employee is wrong

15. ASPECTS/METHODS OF HUMAN RESOURCE ACCOUNTING HUMAN RESOURCE ACCOUNTING Human resource cost accounting 1.Historical cost approach 2.Replacemen t cost approach 3. Opportunity cost approach Human resource value accounting  The lev and schwartz model  Flamholtz model (1971)  Giles and robinson’s human asset multiplier method  Hermanson’s unpurchased goodwill and adjusted discounted future wage model  Jaggi and lau model  Morse net benefits model (1973)

16. Human resource cost accounting Measurement and reporting of costs incurred to acquire and develop people as organizational resources Deals with accounting for investment made by organization HRCA includes : 1. accounting for the cost of personnel activities and function 2. accounting for costs of developing people as human assets Approaches to Human resource accounting was first developed 1691 Measurement and reporting of costs incurred to acquire and develop people as organizational resources Deals with accounting for investment made by organization HRCA includes : 1. accounting for the cost of personnel activities and function 2. accounting for costs of developing people as human assets Approaches to Human resource accounting was first developed 1691

17. Historical cost approach This approach is developed by Brummet, Flamholtz and Pyle This method measures the organization’s investment in employees using the five parameters: recruiting, selecting, training, placing and developing.parameters Any procedure followed for human resource asset is the same as that of other physical assets. This model suggest instead of charging the costs to p&l accounting it should be capitalized in balance sheet. This approach is developed by Brummet, Flamholtz and Pyle This method measures the organization’s investment in employees using the five parameters: recruiting, selecting, training, placing and developing.parameters Any procedure followed for human resource asset is the same as that of other physical assets. This model suggest instead of charging the costs to p&l accounting it should be capitalized in balance sheet.

18. MERITS 1. Simple to understand and easy to work. 2. Traditional accounting concept of matching cost with revenue is followed 3. Helping a firm in finding out a return on HR investment LIMITATIONS 1.Difficult to estimate the number of years an employee will be with the firm 2.Difficult to fix a rate of amortisation 3.Value of an asset decreases with amortisation LIMITATIONS 1.Difficult to estimate the number of years an employee will be with the firm 2.Difficult to fix a rate of amortisation 3.Value of an asset decreases with amortisation

19. Replacement cost approach This method is developed by Rensis Likert & Eric G. flamholtz. The price that will have to pay to replace an existing asset with new asset i.e, employee is called replacement cost. All costs incurred to attain the current level of competence of an existing employee. In replacement cost approach the cost of recruitment, selection, training, development etc of new employees to reach the level of competence of existing employees are measured. This method is developed by Rensis Likert & Eric G. flamholtz. The price that will have to pay to replace an existing asset with new asset i.e, employee is called replacement cost. All costs incurred to attain the current level of competence of an existing employee. In replacement cost approach the cost of recruitment, selection, training, development etc of new employees to reach the level of competence of existing employees are measured.

20. The concept of the replacement cost of human resource is defined as the sacrifice that should have to be incurred today to replace human resource presently employed. There are three basic components of positional replacement cost The concept of the replacement cost of human resource is defined as the sacrifice that should have to be incurred today to replace human resource presently employed. There are three basic components of positional replacement cost Separation cost Learning cost Acquisition cost

21. Merits More realistic Representative and logical Adjusting of human value of price trends in economy Present oriented Demerits difficult to find the identical replacement Not possible to obtain measure of a particular employee Does not reflect the knowledge, competence

22. Opportunity Cost Approach This approach is suggested by Hekimian and Jones. This approach values human resources on the basis of the economic concept of Opportunity cost. The human resource values are measured through a competitive bidding process within the firm, based on the concept of Opportunity Cost. They bid for an employee and the bid price is included in investment cost. Opportunity cost is the value of an asset when there is an alternative use of it.

23. There are two ways to measure cost through human resource accounting: 1.Original or historical cost of human resources 2.Replacement cost of human resources

24. Merits Promising approach Quantitative base Evaluating and developing Strong theoretical approach Useful in decentralized set- up Promising approach Quantitative base Evaluating and developing Strong theoretical approach Useful in decentralized set- up Demerits Discrimination among employees Lower morale of employee May be misleading Difficult to quantify future economic benefits Discrimination among employees Lower morale of employee May be misleading Difficult to quantify future economic benefits

25. CASE STUDY This report is based on human resource practices in life insurance at Reliance Life Insurance New Delhi. Reliance Life Insurance is an associate company of Reliance Capital Ltd., a part of Reliance - Anil Dhirubhai Ambani Group. Reliance Capital is one of India’s leading private sector financial services companies, and ranks amongthe top 3 private sector financial services and banking companies, in terms of net worth. Organizations have now started realizing that the systematic attention t ohuman resources is the only way to increase organizational efficiency in terms productivity, quality, profits and better customer orientation. HR can help deliver organizational excellence by focusing on learning,q uality, teamwork, and through various employee friendly strategies

26. They studied in their research: punctualitymarketing Inter personal relationship s Handling customers Building trust

27. Human Resource Value Accounting The concept is based on views that difference in present and future earning of two similar firms is due to the difference in their human organization. The economic value of the firm can be determined by obtaining the present value of future earnings.

28. The Lev and Schwartz model Lev and Schwartz developed an economic model in 1971 for determining the value of human resources. According to them the value of human capital emboided in a person of age t is the present value of his remaining future earning from employment. 1. All employees are classified in specific groups according to their age and skill. 2.Average annual earnings are determined for various ranges of age. 3.The total earnings which each group will get up to retirement age are calculated. 4.The total earnings calculated as above are discounted at the rate of cost of capital. The value thus arrived at will be the value of human resources/assets.

29. INFOSYS In the financial year 1995-96, Infosys Technologies (Infosys) became the first software company to value its human resources in India. The company used the Lev& Schwartz Model and valued its human resources assets at Rs 1.86 billion. Narayana Murthy (Murthy), the then chairman and managing director of Infosys, said: "Comparing this figure over the years will tell us whether the value of our human resources is appreciating or not. Infosys used the Lev and Schwartz method to value Human Resource According to this model the present value of future earning capacity of an employee, from the time of joining the organization till retirement was estimated. An employee’s salary package included all benefits, whether direct or otherwise, earned both in India and in a foreign Nation. The additional earnings on the basis of age group were also taken into account.

30. The method is as follows. 1. All the employees of Infosys were divided into five groups, based on their average age. 2. Each group’s average compensation was calculated. Infosys also calculated the compensation of each employee at retirement by using an average rate of increment. 3.The increments were based on industry standards, and the employee’s performance and productivity. 4. Finally the total compensation of each group was calculated. This value was discounted at the rate percent per annum which was the cost of capital at Infosys to arrive at the total human resources of Infosys.

31. Disadvantages 1.This model implies that the future work condition of the employee will not change over the span of his working life, but will remain the same as at present. 2.The approach does not take into account the possibility that the employee will withdraw from the organization prior to his death or retirement. It is therefore not realistic. 3. It ignores the variable of the career movement of the employee within the organization. 4.It does not take into account the role changes of employees. However, this method does not give correct value of human assets as it does not measure their contributions to achieving organizational effectiveness.

32. FLAMHOLZ MODEL (1971) According to this model, an individual’s value to an organization is determined by the services he is expected to render to the organization during the period he is likely to remain with the organization in various positions or service states. This model involves the following steps. 1.Estimation of period for which an individual is expected to render service. 2.Identification of various positions or service states that the employee might hold. 3.Estimation of probable period for which he is expected to hold each position. 4.Calculation of expected service to be derived from the individual by Where Si represents the quantity of services expected to be delivered in each state and P (Si) is the probability that the same will be obtained.

33. 5.Determination of the monetary equivalent value of the future service by multiplying the quantity of service with the price and calculation of the income expected to be derived from their use. 6.Calculation of present value of expected future services at predetermined rate. DISADVANTAGES 1.It is very difficult to estimate the likely service states and positions of each employee. 2. Individuals working in a group have higher value for the organisation as compared to the sum or their individual values.

34. GILES AND ROBINSON’S HUMAN ASSET MUTIPLIER METHOD They suggested a human asset measurement method known as human asset multiplier. According to this method, the valuation of human resources should be made in the same way as other business assets on a going concern basis. The calculation of human asset value under this method is based on the notion that an individual’s remuneration or the remuneration of a group of persons in the same grade may be multiplied by a factor determined on the basis of his contribution of the success of business. The total value of human assets employed in the business can be calculated simply by adding together all the individual values so calculated.

35. EXAMPLE TOTAL VALUE = 20 + 21 + 20 + 30 = RS 91 LAKHS GRADESREMUNERATION (IN LAKH) FACTORSVALUE OF HUMAN ASSET A5420 B7321 C10220 D301

36. Hermanson’s Model Hermanson has suggested two models: Unpurchased Goodwill Method Adjusted Discounted Future Wage Model

37. Goodwill Method Model in brief:  Extra profits earned by organization as compared to industry average rate. i.e, HR value = goodwill* investment in HR / total investments.  Under the first model it is argued that super normal profits in a firm are the indicators of presence of human resources.  The rate of earnings may be influenced by other external factors also and cannot be purely linked to HR.

38. Disadvantages o Goodwill may not be attributable to investment in suppliers, the customers, the public image, etc. o This model cannot be implemented if the rate of earnings of the company is less than the industry average. o This model is more subjective and unless relationship of various factors to the company’s goodwill is established, this model is debatable.

39. Adjusted Discounted Future Wage Model Model in brief: HR value is the PV(person’s value) of future wages payable for next 5 years discounted at the adjusted rate of return. The adjustment rate of return refers to average rate of return on owned assets of all firms in the economy multiplied by the efficiency ratio of the organization during the last five years on weighted average basis.

40. The following formula is used: Efficiency Ratio = RF (0) RF(1) RF(2) RF(3) RF(4 ) 5 ---------+4 -------+3 -------+2 --------+ ------- RE(0) RE(1) RE(2) RE(3) RE(4) Where:  RF(0) is the rate of accounting income on owned assets for the firm for the current year.  RE (0) is the rate of accounting income on owned assets for all the firms in the economy for the current year.  RF(4) is the rate of accounting income on owned assets for the firm for the fourth previous year.  RE(4) is the rate of accounting income on owned assets for all the firms in the economy for the fourth previous year.

41. Appraisal:  Rate of return of a specific organization may not be comparable with other firms in the economy. Remarks:  The model is subjective with respect to PV being restricted for five years, efficiency ratio calculated in past five years, and assignment of weightless for past rate of return.  The value of human asset will be an underestimation.  It is too subjective and hence cannot be used.

42. Jaggi and Lau Model Valuation of assets on group basis. A group implies homogeneous employees who may or may not belong to the same department or division. Easy evaluation on group basis.

43. Assumptions Of Jaggi and Lau Model Movement of employee is constant Probabilities can be extended to other period

44. Jaggi & Lau models is given below: TV = (N) rn (T)n(V) Where : TV = current value of all employees (N) = number of employees currently n = time period r = Discount rate (T) =probability that an employee will be in each rank (V) = economic value of an employee

45. Advantages Jaggi-lau model is based on group based valuation model. It simplifies the measurement It involves determination of economic value of an employee of each rank.

46. Morse Net Benefit Model Steps : 1.Determine gross value of future services to be rendered by employees. 2.Determination of cost (Total payment to be made to employees in future) 3. Net Benefit: Step 2 – Step 1 4. Calculation of present value of net benefits by discounting at predetermined rate of discount.

47. Therefore, there is a need for great deal of research which could be of considerable help in the process of human resource development. Certain models fail to recognise the factors determining the value of human resources whereas others have computational problems. The discussion of the HRA models reveals that there is not even a single model which fulfills all the requirements of a model which could help in the process of HRD. CONCLUSION

48. OBJECTIONS AGAINST HUMAN RESOURCE ACCOUNTING Cannot be valued Methods are different Not recognized by tax laws Cannot be measured

49. Period of existence Constant fear Extensive research Problem for management

50. HUMAN RESOURCE ACCOUNTING 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. CCI, 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.

51. 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. But still there are companies which do not follow uniform policies in reporting human resource information as no Internationally Accepted Accounting Standard has been evolved and no guidelines are available as well.