HR Value Accounting - Management Duniya

HR Value Accounting

HR Value Accounting:

This concept is based on the view that difference in present & future earnings of two similar firms is due to the difference in their human organisation. The economic value of a firm can be determined by obtaining the present value of future earnings.

LEV and SCHWARTZ Model: Lev and Schwartz developed an economic model in 1971 for determining the value of human resources in a firm. According to them the value of human capital embodied in a person of age‘T’ is Present value  of its remaining future earnings from employment in the form of salaries, wages etc..,

                               E(V_y) = Σ P_y(t+1) Σ I(T)/(I+R)^t-y

Where:

 E (V_y) = expected value of a ‘y’ year old person’s human capital

 T = the person’s retirement age

 P_y (t) = probability of the person leaving the organisation

I(t) = expected earnings of the person in period

 r = discount rate

Flamholtz Model (1971):

According to this model an individual values to an organisations determine by the service is expected to render to the organisation during a period he is likely to remain with the organisation in various positions or service stated.

Giles & Robbinson human asset multiple methods:

In 1972 the ICMA & the institute of personal management (IPM) sponsored Giles & Robbinson to produce a report on HRA. They suggested a Human Asset Measurement known as Human Asset Multiplier. According to this method the valuation of human resources should be made in the same way as other business, ongoing concern basis.

Hermanson’s unpurchased Goodwill & Adjusted Discounted future wage Model:

R.H Harmanson as suggested two model for the measurement HR’s. According unpurchase goodwill model the value of HR’s of an organisation may be calculated by capitalising earnings in exces of normal earning for the industry or the group of companies of which the firm is apart.

The adjusted discounted wages model uses compensation as a surrogate measure of a person’s valued to the firm. Compensation means the present value of future stream of wage & salaries to employees of the firm.

Jaggi & Lau Model:

This model is suggesting valuation of Human assets group basis rather than on individual basis.

TV = (N) rn (T)n(V)

Where

TV = represent the current value of all current employees in each rank.

(N) = represent the number of employees currently in each rank.

n = the time period

r = the Discount rate

(T) = the probability

(V) = the economic value of an employee of rank 1 during each period.

This model tries to simplify the measurement of value of HR’s by taking group of employees as a base.

Source: Books & Notes

Tags: accounting, accounts, Capital, Employee, finance, HR, HR Value Accounting, Human Resource, income, Loss, Management, Organisation, Profit, Profit and Loss, Resource, Return, revenue, Vlaue
By: Management Duniya