Application of acquisition cost model of human resource accounting: A case study

The real strength of an organization lies in the quality of its human resources. It is through combined efforts of the human force of the company that the monetary and physical resources are best utilized to achieve organizational objective. Any other resources can be useful only to an extent. The human resource is able to put it into use for most effective purpose. Thus human resource is the most valuable assets for any organization. However, the conventional system of accounting does not provide the required information on the cost and value of the employees to the enterprise.

Under the Human Resource Accounting (HRA) practices, all expenditure on recruiting, hiring, and developing people are treated as expenses of the period in which they are incurred. There is a need to take cognizance of human resources as assets of an organization and expenditure on them as the investments, followed consequently by the need to account for them properly. Human Resources are energies, skills, talents, and knowledge of people which are, or which potentially can be applied to the production of goods or the rendering of useful services. As such, investment in human resources refers to all forms of the investments directed to raise the knowledge, skills and aptitudes of the organization's workforce. Infact, the development of human resources constitutes an essential prerequisite and a key factor in sustained and accelerated economic growth.

At present ‘Human Resources Accounting’ is in a developmental stage. There have been a few attempts to implement its concept and methods. Only a few large scale companies are including human resource data in their published statement. However, in view of important of human resources, it is essential that more and more companies including the small scale undertaking should develop a system of computing the value of their human resources and the same should be shown in their financial statement. Therefore, there is a great need to develop the area of ‘Human Resource Accounting’. The paper aims at finding the solution for acquisition cost model for measuring the value of human resources in an organization and to analyze the difference in the results obtained under conventional accounting system and human resources accounting system and then show the impact of these results on decision making.