It without mentioning the names of Shri Motilal Nehru,

 It is widely accepted fact that success of any
organisation or  otherwise, to a great
extent, depends upon the quality, calibre and character of the people working
in it. . Human resource management is the process of identifying and reporting
investments made in the human resources of an organization that are presently
unaccounted for in the convention accounting practices.  It is an extension of standard accounting
principles An organisation having vast physical resources, with latest
technology, may find itself in the midst of severals financial crisis. In case
it does not have right people to manage and conduct its affairs. Thus, inspire
of all technological developments. The importance of human resources has in no
way of diminished. It is unfortunate that even till now accountants have not
been in a position, to evolve a generally accepted system to value and record
this important asset, viz., the human resources.The concept of considering
human beings as an asset is an old phenomenon. One may recall, this connection,
the importance which emperor Akbar gave to the nine jewels (courtiers).The
history of our freedom movement will not be complete without mentioning the
names of Shri Motilal Nehru, Mahatma Gandhi,Sardar vallabhai petal and several
other distinguished freedom fighters. However .no effort was made to assign any
monetary value to such individual in the balance sheet  of the nation or organisation.   Human resource management is the process of
identifying and reporting investments made in the human resources of an
organization that are presently unaccounted for in the convention accounting
practices.  It is an extension of
standard accounting principles. 
Measuring the value of human resources can assist organizations in
accurately documenting their assets. The process of identifying ad measuring
the data about human resources and communicating this information to interested
parities. The expenditure incurred  for
creating , increasing and up-dating the human resource quality by way of
accounting is human resources accounting.

 According to the American  Accounting Society Committee ,Human resource
accounting is the process of identifying and measuring data about human
resources and communicat ing this information to interested parties. 

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           The first attempt to value the human
beings in monetary terms was made by sir William petty as early as 1691.petty
was of the opinion that labour was “the father of wealth” and it must be
included in any estimate of national wealth. Further efforts were made by
William Far in 1853,Earnest  Engle in
1883. However, the real work on the subject 
started from 1960, when behavioural scientists vehemently criticised ,
the conventional accounting practice of not valuing the human resource along
with  other material resources. As a
result , accountant s and economists all over the world become conscious of the
fact the appropriate methodology  and
procedure have to be developed for finding cost and value of the people to the organisation.
Over the period of three decades , a number of experts have worked on it and
produced certain models for evaluating human resources. The notable among them
are Shultz (1960), William C.Pyle(1967), Flam Holtz(1971,1972 and
1975),Morese(1973),Lav and Schwartz(1971), Jaggi and Lav(1974), Kenneth
Sinclare(1978), etc.,


Human resource accounting process was established to fulfil a number of
objectives within the organisation. These include:

1.      To
furnish cost value information for making proper and effective management
decisions about acquiring, allocating, developing, and maintaining human
resources in order to achieve cost effective organizational objectives.

2.      To
monitor effectively the use of human resources by the management.

3.      To
have an analysis of the human asset, i.e. whether such assets are conserved,
depleted or appreciated.

4.      To
aid in the development of management principles and proper decision making for
the future, by classifying financial consequences of various practices.


resource accounting provides useful information to management, financial analysts
and employees,as shown below

Management:  Helps the 
management in decisison making process 
relating to various matters.

Employment, locating and utilisation of human resources.

Transfers,promotion , training and retrenchment of human resource.

(c)Planning  of physical assets via-a-vis human resources.

Evaluating the expenditure incurred for imparting further education and
training to employees in terms of benefits derived from firms.

Identifying the causes of high labour turnover at various levels and take
preventive measures to contain it.

the real cause of .low return on investment, that whether due to improper or
under – utilisation of physical assets or human resources  or both


analysts: (a) financial analysts is interested in understanding
and assessing the internal strength of the firm which means physical assets owned
and possessed depending upon the human resources by the firm.

The vigilant, dynamic and responsible management can steer the company well
through most adverse and unfavourable circumstances

 The valuation of human resources depends on
three important aspects such as (i) valuation of human resources.(ii) recording
the valuation in the books of accounts and (iii) disclosure of the information
in the financial statements of the business.


being cannot be owned like physical assets and they cannot command any value.

Tax law do not recognise human beings  as

There is no generally accepted model for valuation of human resource s.the mode
of presentation has also yet to be codified.

It depends upon a large number of abstract factors not measurable in precise
monetary terms.

It lacks objectivity and preciseness.

of human resources

importance approaches for valuation of human resources are given below:

1.Historical Cost Approach:

This approach was first developed by William C.Pyle(and assisted by R.Lee
Brummet &Eric G.Flamholtz) and R.G.Berry corporation , a leisure footwear
manufacture based on Columbus, Ohio(USA) in 1967.

Actual cost incurred on recruiting, hiring, training and developing the human resource
of the organisation are capitalised and amortised over the expected useful life
of the human resources.

proper recording of the expenditure made on training and developing the
employees increases, the value of human assets like physical asset and
therefore capitalised in a similar manner.


This method is simple to understand and easy to work out.

This method  follows the traditional  accounting concept of matching cost with

It provides a basis for valuing a firm ‘s returns on its investment on human


It does not consider the aggregate value
of the ir potential services.

It is difficult to estimate the period
over which the human resource will provide service to the organisation.

It thus creates problems in determinig the
amount to be amortised over the year.

The value of Human assets goes on
decreasing every year due to amortisation.

cost approach:

was developed by Rensis Likert and Eric G.Flamholtz.

This approach  values the human resources at their present
replacement cost on  the basis of the
assumption .

what would cost the firm, If the existing
human resources are required to be replaced with others of equivalent talents
and experience.

It allows for changes in the cost for acquiring,
training and developing the employees in place of taking their historical cost
for capitalisation.


This approach incorporates the current
value of the firm’s human resources and 
thus, the financial statements 
prepared are more realistic.

It is almost impossible to ascertain  correct replacement cost of existing human
resources since there can be no complete replacement for them.


method is at variance with conventional accounting  practice of valuing assets at historical costs.

It is almost impossible to ascertain correct replacement cost of existing human
resources there can be no complete replacement for them.

Ther is no objective way  for determination of replacement cost.

    Opportunity cost approach:

*It has been suggested by Hekimian
and Jones for a company with several divisional heads bidding for the services
of various people they need among themselves and then include the bid price in
the investment cost.

*Opportunity cost is the
value of an asset when there is an alternative use of it. 

*If there is no scare of employees ,
there will be no opportunity cost.As such , only scare people should comprise
the value of human resources.


(i).This method can work for some of
the people at shop floor and middle order management.

(ii).This approach believe that a
bidding process such as this is a promising approach towards more optional
allocation of personnel and a quantitative base for planning , evaluating and
developing human assets of the firm.


(i)It has specifically excluded from
its perview the employees who are not scare or are not being bid by the other

(ii).It result in
lowering the morale and productivity of theemployees who are not covered by the
competitive process.

 (iii)The total valuation of human resources on
te competitive bid price may be misleading and inaccurate, due to the reason
that a person may be an expert and valuable person for the department in which
he is working and thus command a hig value but may have a lower price in the
bid by the other department.

(iv)Valuation on the basis of the
opportunity cost is restricted to alternative use within the organization.


This approach envisages establishing of a standard cost per grade of
updated every year. Replacement costs can be used to develop standard costs of
recruitment, training and developing individuals. Variances produced should be
analyesed and would from a useful basis for control. But under this approach
determination of the standard cost foreach grade of employee isaticklish

 Standard cost is fixed for each category of
employees and thier value is calculated. This method is simple but does not
take into account differences in employees put in the same group.


    Under this approach, the value of human
resources of an organization is determined according to their present value to
te organization.  The future earnings of various
groups of employees are estimated up to the age of thier retirement and are
discounted at a predetermined rate to obtain the present value of such


 It is similar to the present value of future
earnings used in the financial assets.


This method does not give
correct value of human assets .

 It does not measure thier contributions to
achieving organisational effectiveness.


number of valuation models have been developed to determine the present value.


 Present value of future earings model.

Rewards valuation model.

Net benifit model.

Certainly equivalent net benefit model.

Aggregate payment approach.

value of future earings model

                    Developed by Lev and Schwartz and is popular
in india . this is also known as capitalisation of salary method. Under this
method the future earnings of  an
employee or grades of employees are estimated up to the age of retirement and
are discounted at a rate appropriate to the person or the group in order to
obtain the present value.

model may be expresses as follows:

the human capital valuee of a person y years old

the person’s annual earnings up to retirement.

discount rate specific to the person

retirement age

above formula does not take into account the probability of a person dying
before retirement or leaving the organisation.

realizable value:

  This method may provide information for
record purpose  but do not reflect the
true value of human assets, As against these methods, Expected realizable value
is based on the assumption.And this is true also. That thereis no direct
relationship betweeen cost incurred on an individual and his value to
organisation can be defined as the present worth of the set of future services
that he is expected to provide during the period he remains in the

has given the variables afecting an individual ‘s expected realisable value

conditional values and his like hood of remaining in the organisation. The
former is a fuction of the individual’s abilities and activation level. While
the later is a function of such variables as job satisfaction , commitment,
motivation and other factors.

Economic value method: The economist’s