HUMAN RESOURCES IN BALANCE

SHEET
INTRODUCTION

 The human resource is now purely a non-financial

asset that finds so far no place in the balance
sheet. The size and constituent of balance sheet
totally depends upon the effort and the quality of
human resource. To have more clarity and
transparency, on the strength of the organization
reflected in the balance sheet, it is required that a
method has to be devised to convert this non
financial asset in financial terms.
BALANCE SHEET AND H.R.
 The balance sheet normally contains two items,
namely ASSETS and LIABILITIES
 So, far there is no place for HUMAN RESOURCES
in the balance sheet
WHY TO TAKE H.R. AS ASSET?
 Assets column shows unexpired assets which can
be used for several no. of years
 Human resources are also unexpired assets which
can be used over a no. of years
 Presently the financial accounting system shows the
expenditure incurred in compensation, training and
development, workshops and other knowledge
improving activities as operating and establishment
expenditure and accounted for the same year.
Hence it is felt that the mention of investment made
in the qualified personals have to be quantified in
financial terms to have more meaningful transparent
balance sheet
TECHNIQUES OF H.R VALUATION
 Various techniques have been developed to covert
this qualitative aspect quantitative terms
HISTORICAL VALUE METHOD
 This method was proposed by BRUMMENT to
measure an organization's investment in human
resources. The human resource cost are current
sacrifice for obtaining future benefits and therefore
be treated as asset. It involve the capitalization of all
cost of recruitment, selection, training, development
and all other initial cost and treat them as asset.
ECONOMIC VALUE METHOD
 As per this method, the remuneration to be paid to
an employee during his employment be estimated
and discounted by an appropriate amount to arrive at
a estimated present value.
DISCOUNTED SALARY AND WAGES
METHOD

 The method suggests estimation of future

earnings up to the time they retire and then
arriving at the present value by discounting
the estimated value by cost of capital.
 Under this method, salaries are used as the
base for valuation of human resources
 The demerit here is that it is assumed that the
employee remains in the same position till he retires.
So the error is that employees are not paid in relation
to their value to the organization.
REPLACEMENT COST METHOD

 IRC ( individual replacement cost)

 PRC (positional replacement cost)

OPPORTUNITY COST METHOD
 This method advocates computation of monitory
valuation of people to most promising activity and
thereby to assess the key employee through
competitive bidding among investment centre and
the bid amount is the value of the employee. The
demerit of this method is that it suggest that the
employees that can be hired easily have no value
but that are scarce have a value that is not true
CONCLUSION

 The basic objective of an organization is to

maximize the business, project, owner’s
wealth well being of the society.
 In order to achieve the above goals, it is
required for an organization to continuously
enhance the knowledge, skills and
competence of it’s human resources
 Itis required to focus in depth on this
important issue and formulate a logical
methodology for reflecting the human
strength in the balance sheet. It can then
only give a true picture of the organization.
THANK YOU