HUMAN RESOURCE ACCOUNTING

Submitted By:Anish Tulshyan 12810009Atul Kumar 12810021Nishita Singh 12810058Rahul Paul 12810064

STAGE I

(1960-66)

STAGE II

(1966-71)

STAGE III

(1971-76)

STAGE IV

(1976-80)

STAGE V

(1990 onwards)

HISTORICAL DEVELOPMENT OF HRA

Beginning of academic interest in the area of HRA

The focus here was more on development and validating deferent models

This period was marked by a widespread interest in the field of HR. R.G. Barry experiments contributed

substantially during the stage

This was the period of decline in the areas of HRA

There was a sudden renewal of interest in the field of HRA

Human Resource Accounting practices in Indian Organization

Traditional accounting involves treatment of human capital and non-human capital differently.

Indian companies are now considering human resource factor just like another factor to production.

Report shows that approximately 73 per cent of national income is utilized to compensate employees.

The concept of Human Resource Accounting in India is a recent phenomenon and is struggling for its acceptance.

In India, Human Resource Accounting has not been introduced so far as a system .

Growing Awareness

• Indian Companies Act does not provide any scope for furnishing any significant information about human resources in financial statements.

• However, a growing trend towards the measurement and reporting of human resources, particularly in the public sectors, is noticeable during past few years.

• Some of the organization which have started disclosing some valuable information regarding human resources in their financial statements areBHEL Cement Corporation of India ONGC Engineers India Ltd. National Thermal Power Corporation Mineral and Metals Trading Corporation Madras Refineries Associated Cement Companies Infosys Cochin Refineries Ltd. Etc.

Advantages of HRA

1. Information for manpower planning2. Information for making personnel policies3. Utilization of human resources4. Proper placements5. Increases morale and motivation6. Attracts best human resources7. Designing training and development programs8. Valuable information to investors

HRA provides valuable information to present and future investors. They can use this information to select the best company for investing their money.

Methods Of HRA

Cost approach

Economic value approach

This method measures the organization’s investment in employees using the five parameters: recruiting, acquisition; formal training

and, familiarization; informal training, Informal familiarization; experience; and development.

This method links HRM with money aspect involved in it and the amount of money that can be saved using it.

Monetary Measures:

Methods Of HRA

Expected reliable value method:

Discounted net present value of future earnings:

Elements of expected realizable value such as productivity, transferability and promotability can be measured through

personal research, appraisal techniques.

Rensis Likert proposed 3 sets of variables- causal,intermediate and output. Causal variables affect intermediate variables, which in turn affect output variables.

Non - Monetary Measures:

HISTORICAL COST

OPPORTUNITY COST

REPLACEMENT COST

A calculation of what would have been the returns if the money spent on HR was spent on something else

COST APPROACH IN HRA

The cost that would have to be incurred if present employees are to be replaced

The historical cost of human resources is the sacrifice that was made to acquire and develop the resource

PRESENT VALUE OF FUTURE EARNINGS

COMPETITIVE BIDDING MODEL

INDIVIDUAL VALUE TO ORGANIZATION

An internal market for labor is developed and the value of the employees is determined by the managers. Managers bid against each other for human resources already available within the organization. The highest bidder ‘wins’ the resource

ECONOMIC VALUE APPROACH

This method helps in determining what an employee’s future contribution is worth today.

Value of an individual is the present worth of the services that he is likely to render to the organization in future

Stochastic Rewards Model

Sk. Chakraborty Model

Lev and Schwartz compensation model

Sk. Chakraborty of Indian institute of management Calcutta was the first Indian to attempt at valuation of resources

OTHER MODELS

This model developed in 1971 by Lev and Schwartz for valuing human resources, value of human assets is estimated for a person at a given age which is the present value of his remaining future earning from his employment

Stochastic Rewards Model was developed by Eric G. Flamholtz. This model identified some major variables that are help to determine the value of an individual to the organization

Methods Of HRA

Non-Monetary Measures:Expected reliable value method:Elements of expected realizable value such as productivity,

transferability and promotability can be measured through personal research, appraisal techniques.

Discounted net present value of future earnings:Rensis Likert proposed 3 sets of variables- causal,intermediate

and output. Causal variables affect intermediate variables, which in turn affect output variables.

Approaches to Control Manpower Costs

•Management by objective(MBO)Business of personnel is judged in terms of goals. Employee feelings and attitudes are regarded as important as assets, costs and profits.•Ratio AnalysisPerformance indicators called personnel ratios are used to control manpower costs.•Personnel ProductivityProductivity gains and control of manpower costs can be achieved through quality circles, productivity-linked rewards and work simplification. •Personnel reports budgets and auditsThey help in providing information, checking deviation, examining policies and initiating remedial steps whenever required.

1. HMTL (Hindustan Machine Tools Limited):

HMTL uses the Lev and Schwartz economic value based model for the valuation and reporting of information regarding its human resources as supplementary information in its annual reports.

Year Value per employee(Rs. In Cr.)

Value of production(Rs. In Cr.)

Value Added(Rs. In Cr.)

Manpower in numbers

1999-01(18 months) 1001.66 12043 0.083 335.91

2001-02 586.86 9502 0.062 153.092002-03 501.53 7865 0.064 147.372003-04 543.43 5995 0.089 212.32004-05 631.24 5665 0.111 328.532005-06 1053.34 5583 0.189 385.392006-07 1909.18 5451 0.350 781.082007-08 1993.48 5405

2. Steel Authority of India Limited (SAIL):

Results on Human Resource Evaluation

2002-03

2003-04

2004-05

2005-06

2006-07

2007-08

2008-09

2009-10

2010-11

Revenue factor (N per employee) 0.122 0.161 0.223 0.201 0.255 0.307 0.356 0.370 0.405

Expenses factor (N per employee) 0.044 0.053 0.048 0.046 0.054 0.232 0.287 0.279 0.334

Income Factor (N per employee) -0.002 0.020 0.074 0.041 0.071 0.089 0.077 0.087 0.065

Production factor (N per employee) 0.319 0.353 0.363 0.375 0.396 0.424 0.431 0.450 0.485

SAIL reports value of its human resources from the financial year 1983-84, and it follows the human resource valuation model suggested by Lev and Schwartz by taking some adjustments given by Flamholtz and Jaggi and Lau.

3. Infosys Technologies Limited:

This model developed in 1971 by Lev and Schwartz for valuing human resources, value of human assets is estimated for a person at a given age which is th In Infosys, the Lev and Schwartz model has been used to measure the value of human resources. The company has valued its HR based on certain assumptions, which include:

(a) Employee compensation includes all direct and indirect benefits

earned both in India and abroad

(b) The incremental earnings based on group/age are considered

(c) The future earnings are discounted at the rate which is equivalent to the weighted average cost of capital of the last five years. e present value of his remaining future earning from his employment

BALANCE SHEET (INCLUDING INTANGIBLE ASSETS) OF INFOSYS

Particulars 2003 2004 2005 2006 2007 2008 2009

Share Capital 33 33 135 138 286 286 286

Reserves and surplus

Capital Reserves – intangible assets 17,905 32,541 42,487 69,552 89,069 1,30,684 1,34,478

Other reserves 2,827 3,216 5,182 6,828 10,969 13,509 17,968

Minority interest / Preference share - 93(pre.Sh) 0.14 68 4 - -

Applications of Funds

Fixed Assets 772.72 1,031 1,574 2,226 3,771 4,777 5,354

Intangible assets

Brand value 7,488 8,185 14,153 22,915 31,617 31,863 32,345

Human Resources 10,417 21,139 28,334 46,637 57,452 98,821 1,02,133

Investments 33 945 1,210 755 25 72 ---Deferred tax assets 36 39 44 65 92 119 126

Current assets, loans and advances 2,721 3,233 3,922 6,334 9,521 13,018 16,646

Less: current liabilities and provisions 703 1,907 1,432 2,346 2,150 4,191 3,872

Net current assets 2,018 1,326 2,490 3,988 7,371 8,827 12,774

4. Satyam Computer Services Limited

PeriodHuman Resources ValuationCategory Number ` in Cr.

March 2007Development 33,812 39,319Support 1,858 1,581Total 35,670 40,900

March 2008

Development 85,013 92,331

Support 6,174 6,490

Total 91,187 98,821

March 2009

Development 97,349 95,600

Support 7,501 6,533

Total 1,04,850 102,133

The company uses the Lev and Schwartz model for measuring its HR value. HR value is the present value of the future earnings up to the retirement age, and the future earnings are discounted by the weighted average cost of capital for the past years.

5: HPCL

Year-wise Manpower

No. of Management Employees

No. of Non-management Employees

Total Strength

2002 3,571 7,786 11,3572003 3,583 7,630 11,213

2004 3,594 7,494 11,088

2005 3,562 6,999 10,5612006 3,849 6,929 10,7782009 11,246 4551 15,7972010 11,291 4,779 16,070

HPCL has a mix of energetic youth and experienced seniors, who harmonize the efforts to achieve the corporation’s goals. The Lev and Schwartz Model is being used.

HRA practices by various companies in India

Name of theenterprise HRA introduce

in the yearModeladopted

Discount rate (in %) applied

Category wise no. of employees

Age and category wise no. of employees

Category wise human resource values

Productivity & performance ratios

BHEL 1974-75 Lev and Schwartz model 12 Yes Yes Yes Yes

SAIL 1983-84 Lev Schwartz model, Flamholtz and Jaggi and Lau

15 Yes Yes Yes --

EIL 1980-81 Not reported 10 Yes -- Yes --HMTL 1986-87 Not reported Not reported Yes Yes -- --ONGC 1981-82 Not reported 12.25 Yes -- Yes --NTPC 1986-87 Lev and Schwartz model 12 Yes Yes Yes Yes

ELIL 1983-84 Lev and Schwartz model 12 Yes -- Yes --

PEC 1980-81 Lev and Schwartz model Not reported Yes -- Yes Yes

MRL 1985-86 Lev and Schwartz model 15 Yes -- Yes Yes

ACC 1983-84 Lev and Schwartz model Not reported Yes -- Yes --

OIL 1982-83 Lev and Schwartz 10.5 Yes -- Yes Yes

Thank You