It without mentioning the names of Shri Motilal Nehru,

 It is widely accepted fact that success of anyorganisation or  otherwise, to a greatextent, depends upon the quality, calibre and character of the people workingin it. . Human resource management is the process of identifying and reportinginvestments made in the human resources of an organization that are presentlyunaccounted for in the convention accounting practices.

  It is an extension of standard accountingprinciples An organisation having vast physical resources, with latesttechnology, may find itself in the midst of severals financial crisis. In caseit does not have right people to manage and conduct its affairs. Thus, inspireof all technological developments. The importance of human resources has in noway of diminished. It is unfortunate that even till now accountants have notbeen in a position, to evolve a generally accepted system to value and recordthis important asset, viz.

, the human resources.The concept of consideringhuman beings as an asset is an old phenomenon. One may recall, this connection,the importance which emperor Akbar gave to the nine jewels (courtiers).Thehistory of our freedom movement will not be complete without mentioning thenames of Shri Motilal Nehru, Mahatma Gandhi,Sardar vallabhai petal and severalother distinguished freedom fighters.

However .no effort was made to assign anymonetary value to such individual in the balance sheet  of the nation or organisation.   Human resource management is the process ofidentifying and reporting investments made in the human resources of anorganization that are presently unaccounted for in the convention accountingpractices.

 It is an extension ofstandard accounting principles. Measuring the value of human resources can assist organizations inaccurately documenting their assets. The process of identifying ad measuringthe data about human resources and communicating this information to interestedparities. The expenditure incurred  forcreating , increasing and up-dating the human resource quality by way ofaccounting is human resources accounting. According to the American  Accounting Society Committee ,Human resourceaccounting is the process of identifying and measuring data about humanresources and communicat ing this information to interested parties.  ORIGIN           The first attempt to value the humanbeings in monetary terms was made by sir William petty as early as 1691.

pettywas of the opinion that labour was “the father of wealth” and it must beincluded in any estimate of national wealth. Further efforts were made byWilliam Far in 1853,Earnest  Engle in1883. 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 alongwith  other material resources. As aresult , accountant s and economists all over the world become conscious of thefact the appropriate methodology  andprocedure 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 andproduced certain models for evaluating human resources. The notable among themare Shultz (1960), William C.Pyle(1967), Flam Holtz(1971,1972 and1975),Morese(1973),Lav and Schwartz(1971), Jaggi and Lav(1974), KennethSinclare(1978), etc.

, Objectives                         TheHuman resource accounting process was established to fulfil a number ofobjectives within the organisation. These include:1.      Tofurnish cost value information for making proper and effective managementdecisions about acquiring, allocating, developing, and maintaining humanresources in order to achieve cost effective organizational objectives.2.      Tomonitor effectively the use of human resources by the management.3.      Tohave an analysis of the human asset, i.

e. whether such assets are conserved,depleted or appreciated.4.

      Toaid in the development of management principles and proper decision making forthe future, by classifying financial consequences of various practices. Importance:Humanresource accounting provides useful information to management, financial analystsand employees,as shown belowManagement:  Helps the management in decisison making process relating to various matters.(a).Employment, locating and utilisation of human resources.(b).Transfers,promotion , training and retrenchment of human resource.(c)Planning  of physical assets via-a-vis human resources.

(d)Evaluating the expenditure incurred for imparting further education andtraining to employees in terms of benefits derived from firms.(e)Identifying the causes of high labour turnover at various levels and takepreventive measures to contain it. (f)Locatingthe real cause of .low return on investment, that whether due to improper orunder – utilisation of physical assets or human resources  or both Financialanalysts: (a) financial analysts is interested in understandingand assessing the internal strength of the firm which means physical assets ownedand possessed depending upon the human resources by the firm. (b)The vigilant, dynamic and responsible management can steer the company wellthrough most adverse and unfavourable circumstances The valuation of human resources depends onthree important aspects such as (i) valuation of human resources.(ii) recordingthe valuation in the books of accounts and (iii) disclosure of the informationin the financial statements of the business.Objections:1.

Humanbeing cannot be owned like physical assets and they cannot command any value.2.Tax law do not recognise human beings  asassets.3.There is no generally accepted model for valuation of human resource s.the modeof presentation has also yet to be codified.4.It depends upon a large number of abstract factors not measurable in precisemonetary terms.

5.It lacks objectivity and preciseness.                  Valuationof human resourcesTheimportance approaches for valuation of human resources are given below:1.Historical Cost Approach:(a)This approach was first developed by William C.Pyle(and assisted by R.LeeBrummet &Eric G.

Flamholtz) and R.G.Berry corporation , a leisure footwearmanufacture based on Columbus, Ohio(USA) in 1967.(b)Actual cost incurred on recruiting, hiring, training and developing the human resourceof the organisation are capitalised and amortised over the expected useful lifeof the human resources.(c)Aproper recording of the expenditure made on training and developing theemployees increases, the value of human assets like physical asset andtherefore capitalised in a similar manner.

Merits(i)This method is simple to understand and easy to work out.(ii)This method  follows the traditional  accounting concept of matching cost withrevenue.(iii)It provides a basis for valuing a firm ‘s returns on its investment on humanresources.Demerits:(i)                It does not consider the aggregate valueof the ir potential services.

(ii)             It is difficult to estimate the periodover which the human resource will provide service to the organisation.(iii)           It thus creates problems in determinig theamount to be amortised over the year.(iv)            The value of Human assets goes ondecreasing every year due to amortisation.Replacementcost approach:·        It was developed by Rensis Likert and Eric G.Flamholtz.

·        This approach  values the human resources at their presentreplacement cost on  the basis of theassumption . ·        what would cost the firm, If the existinghuman resources are required to be replaced with others of equivalent talentsand experience.·        It allows for changes in the cost for acquiring,training and developing the employees in place of taking their historical costfor capitalisation.

Merits:(i)                This approach incorporates the currentvalue of the firm’s human resources and thus, the financial statements prepared are more realistic.(ii)             It is almost impossible to ascertain  correct replacement cost of existing humanresources since there can be no complete replacement for them.Demerits:(i)Themethod is at variance with conventional accounting  practice of valuing assets at historical costs.(ii)It is almost impossible to ascertain correct replacement cost of existing humanresources there can be no complete replacement for them.

(iii)           Ther is no objective way  for determination of replacement cost.    Opportunity cost approach:*It has been suggested by Hekimianand Jones for a company with several divisional heads bidding for the servicesof various people they need among themselves and then include the bid price inthe investment cost.*Opportunity cost is thevalue 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 comprisethe value of human resources.   Merits:(i).This method can work for some ofthe people at shop floor and middle order management. (ii).

This approach believe that abidding process such as this is a promising approach towards more optionalallocation of personnel and a quantitative base for planning , evaluating anddeveloping human assets of the firm.  Demerits:(i)It has specifically excluded fromits perview the employees who are not scare or are not being bid by the otherdepartments(ii).It result inlowering the morale and productivity of theemployees who are not covered by thecompetitive process. (iii)The total valuation of human resources onte competitive bid price may be misleading and inaccurate, due to the reasonthat a person may be an expert and valuable person for the department in whichhe is working and thus command a hig value but may have a lower price in thebid by the other department.(iv)Valuation on the basis of theopportunity cost is restricted to alternative use within the organization.  4.STANDARD COST APPROACH     This approach envisages establishing of a standard cost per grade ofupdated every year.

Replacement costs can be used to develop standard costs ofrecruitment, training and developing individuals. Variances produced should beanalyesed and would from a useful basis for control. But under this approachdetermination of the standard cost foreach grade of employee isaticklishprocess.  Standard cost is fixed for each category ofemployees and thier value is calculated. This method is simple but does nottake into account differences in employees put in the same group.5.PRESENT VALUE APPROACH    Under this approach, the value of humanresources of an organization is determined according to their present value tote organization.  The future earnings of variousgroups of employees are estimated up to the age of thier retirement and arediscounted at a predetermined rate to obtain the present value of suchearnings.

Merits: It is similar to the present value of futureearnings used in the financial assets.Demerits:This method does not givecorrect value of human assets . It does not measure thier contributions toachieving organisational effectiveness. Anumber of valuation models have been developed to determine the present value.

    (i)                 Present value of future earings model.(ii)             Rewards valuation model.(iii)           Net benifit model.(iv)            Certainly equivalent net benefit model.(v)              Aggregate payment approach.

Presentvalue of future earings model                    Developed by Lev and Schwartz and is popularin india . this is also known as capitalisation of salary method. Under thismethod the future earnings of  anemployee or grades of employees are estimated up to the age of retirement andare discounted at a rate appropriate to the person or the group in order toobtain the present value.Themodel may be expresses as follows:V=the human capital valuee of a person y years oldI=the person’s annual earnings up to retirement.

R=discount rate specific to the personT=retirement age Theabove formula does not take into account the probability of a person dyingbefore retirement or leaving the organisation.Expectedrealizable value:  This method may provide information forrecord purpose  but do not reflect thetrue value of human assets, As against these methods, Expected realizable valueis based on the assumption.And this is true also. That thereis no directrelationship betweeen cost incurred on an individual and his value toorganisation can be defined as the present worth of the set of future servicesthat he is expected to provide during the period he remains in theorganisation.Flamholtzhas given the variables afecting an individual ‘s expected realisable value(IERV)Individualconditional values and his like hood of remaining in the organisation.

Theformer is a fuction of the individual’s abilities and activation level. Whilethe later is a function of such variables as job satisfaction , commitment,motivation and other factors.Economic value method: The economist’sconcepts