HR ACCOUNTING

• The importance and value of human assets started to be recognized in the early 1990s when there was a major increase in employment in firms in service, technology and other knowledge-based sectors

• It was first promulgated by BHEL (Bharat Heavy Electrical Ltd), a leading public enterprise, during the financial year 1972-73.

• Later it was also adopted by Hindustan Machine Tools Ltd.

(HMTL), Oil and Natural Gas Corporation Ltd.(ONGC), NTPC, Cochin Refineries Ltd. (CRL), Madras Refineries Ltd.(MRL), Associated Cement Company Ltd.(ACC) and Infosys Technologies Ltd.(ITL).

Definition of HRA: According to Eric. G flamholtz HRA represents-"Accounting for people as an organizational resource. It is the measurement of the cost & value of people for the organization".

Models of Human Capital Valuation Many models have been created to value human capital. Some are based on historic costs while some are based on future earnings. But each has its own limitations and one model has proved to be more valid than other. Although the Lev and Schwartz model has been the most widely use model for its ease of use & convenience.

Use of the Lev and Schwartz Method to Value HR in Infosys as follows :· All the employees of Infosys were divided into five groups, based on their average age .Each group’s average compensation was calculated.· Infosys also calculated the compensation of each employee at retirement by using an average rate of increment.· The increments were based on industry standards, and the employee’s performance and productivity.· Finally the total compensation of each group was calculated. This value was discounted at the rate percent per annum which was the cost of capital at Infosys to arrive at the total human resources of Infosys.

According to this report the worth of each Infosys employee in 2011 is 75 lakhs and as per 2012 it is 84 lakhs.

Benefits experienced By Infosys by valuing its human resourcesa) Infosys could determine whether its human asset was appreciating over the years or notb) The company could also use this information internally to compare the performance and productivity of employees in various departments.c) HRA also helped Infosys to decide the compensation of employees. The company ensured that it compensated each employee according to his / her net worth.d) HRA also helped Infosys in indentifying and retaining valuable employees.e) It helped organization to take managerial decisions based on the availability and the necessity of human resources.f) When human resources get quantified it gave Infosys investors and other clients true insights into the organization and its future potential. It restored faith amongst shareholders

THANKYOU !!!

REFERENCE :http://www.infosys.com/investors/reports-filings/annual-report/annual/Documents/AR-2011/ai_13.html