Friday, 28 December 2018


Human resources are one of the most important assets of an organization that are very different from the physical assets. Physical assets unlike human assets do not have emotions and feelings, they don’t get depreciated.

Human resource accounting is accounting for people as the organizational resources. It includes measurement of cost and value of people to organizations. It includes cost of recruiting, selecting, hiring, training and developing employees and judging their economic value to the organization.

The American Accounting Associations’ Committee on Human Resource Accounting (1973) has defined Human Resource Accounting as “the process of identifying and measuring data about human resource and communicating this information to interested parties”

In the traditional concept of accounting all expenses on human resources like training, recruitment, etc. are treated as expenses and written off against revenue instead of being treated as investments, to be amortized over a period of time.

Such a system will ensure proper furnishing of cost value information about acquisition, allocation, development and maintenance of human resources, their effective monitoring by management, development of management principles in context etc.

There are various methods of valuation of human resource accounting like Historical Cost Method, Replacement Cost Approach, Opportunity Cost, etc.

In the first method the actual cost incurred on recruiting, hiring, training and development of human resources are capitalized and amortized over the expected useful life of the human resources. If the human assets are liquidated before their expected useful life of human resources the whole amount not written off is charged to the income of the year in which liquidation takes place.

The second method values the human resources on the assumption that if the current human resources are to be replaced with equally qualified and experienced individuals what will be the cost to the company in recruiting, hiring, training and developing the replacement.

As per the third method several divisional heads bid for the services of various people they need among themselves and then include the bid price in the investment cost.

These methods have certain advantages as well as disadvantages; therefore, there is always a bone of contention among the firms that which method is ideal one.

Also as there are no standardized procedures developed so far, only few organizations are providing the data but only as additional information. The system will take a few years to flourish but it is indeed the right way forward.

Ms. Divya Gupta

Assistant Professor

Department of Management Studies

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