Use app×
Join Bloom Tuition
One on One Online Tuition
JEE MAIN 2025 Foundation Course
NEET 2025 Foundation Course
CLASS 12 FOUNDATION COURSE
CLASS 10 FOUNDATION COURSE
CLASS 9 FOUNDATION COURSE
CLASS 8 FOUNDATION COURSE
0 votes
47 views
in Business Studies by (49.6k points)
closed by

Problems in HRA Reporting.

1 Answer

+1 vote
by (45.2k points)
selected by
 
Best answer

1. Human Resource Accounting is shown as supplementary information in the annual reports , which has no significance.

2. All the companies who are reporting Human Resource Accounting have used Lev and Schwartz model but this model is suffering from some drawbacks. One it has assured state promotion policy and consistent average salary to all the employees in a particular group. These two assumptions are far from reality , difference in skill , experience qualifications and increasing importance of employees union often lead to change in these policies.

3. Though human capital plays an important role in any organization , there is a wide spread , disagreement regarding the reorganization and valuation of human resource as assets on generally the assets is one which fulfills the following three criteria. They are,

(i) the entity should have legally enforceable claim to it.

(ii) It should be owned by the entity

(iii) the entity should posses it with the expectation of deriving services from it in future HR are not fulfilling any criteria. As such there is a problem in recognizing human resources as assets.

4. Proper matching of costs with revenue is not possible unless the costs on the recruitment training and development of personnel are capitalized over their effective service lives. It is so because the benefits from such expenses are usually derived over a period beyond the year of payment. However in a number of cases, the earnings potential of employees may not depend upon the expenditure incurred by the firms for the purpose. But it depends upon behaviour aspects like skill , motivation group loyalty capacity for effective interaction and decision making etc , to influence the end results of an enterprises effectively.

5. The very idea of showing human resource as an asset on the balance sheet of a firm tends to be arbitrary for this purpose as per the methods available , human resource are to be valued either on the basis of cost incurred by a firm on recruitment trainings etc or replacement cost. In both the methods cost is taken as the value of human assets. But this hardly represent the real value of personnel in particular and the firm in general. The other method like discounted wage, and salaries method , economic value method , and opportunity cost method , involves the element of subjectivity in valuing the human resources.

6. Yet another difficulty regarding HRA is Quantification and pricing of employees in respect of jobs which do not yield any physical output. Determination of probabilities of the expected services of the employees is also a difficult task. These practical difficulties are subject to the influence of age qualification , the previous experience point of first entry , employment period and turn over as well as the organizational pulls and pressures on different categories of employees.

7. In all the methods , the salaries earned by the employees are taken as the basis for valuing human resources. Thus the career movement of employees either within the organization or elsewhere in the other organization is kept outside the purview of valuation. Since the employees make constanttrials to occupy higher position during their effective service life , any valuation process without considering this way tend to be less meaningful.

8. The provision of existing tax laws , do not recognize the amortized portion of capitalized human resource value as deductible expenses for computing income. Even if attempts are made to amend the existing provision of tax laws there is a greater amount of scope to misuse the facility as the employers may adopt fictitious method to undertake the profitability of their business and may show unrealistic value of the firm.

Related questions

Welcome to Sarthaks eConnect: A unique platform where students can interact with teachers/experts/students to get solutions to their queries. Students (upto class 10+2) preparing for All Government Exams, CBSE Board Exam, ICSE Board Exam, State Board Exam, JEE (Mains+Advance) and NEET can ask questions from any subject and get quick answers by subject teachers/ experts/mentors/students.

Categories

...