Challenge for HR - National HRD Network

Entry to be made in the books is
Unassigned human assets a/c Dr
To Borrowed human capital a/c
When employees are posted to the
production process, the entry is
Employed human capital a/c Dr
To Unassigned human assets/c
When the organization downsizes the
number of employees one has to pass a
reverse entry. The human capital is shown
as a liability and the unassigned and
employed human assets appear as assets
in the balance sheet.
The demand deposits and human capital
are similar in respect of ownership
parameter as both are not owned by the
organization. But both can be used in
revenue generating activities. Both differ in
the following aspects. The initial amount of
demand deposit is returned and the DD is
easily recorded in financial statements in
terms of rupees. But the measurement of
HR could be difficult to compute, moreover,
at the time when the employees leave the
organizations one has to take in to account
the earning potential of the employees,
health and pension benefits etc and it is a
very tough and complex process to
determine the repayment value of the
human capital .As far as this method is
concerned, accounting professionals may
not find this approach a viable one as this
method also suffers from the following
limitation, that is ,difficulty in expressing HR
in terms of monetary values. The basic
accounting rule is that only those
transactions which are capable of being
measured in financial terms can find place
in accounting records.
Lease method
In case of lease method, there are 2 parties
invoved, one is called the lessor (owner) and
the other one is known as the lessee
(Tenant/Hirer). It is an agreement whereby
lessee gets the right to use lessor's asset.
The lease agreement makes the borrower
to enter in to a liability legally in the form of
periodic payments and the return of the
asset in a specified condition at the end of
the lease period. Sometimes the specified
condition might be stated as, "The asset
must be returned in its original condition,
Carried from Page 38
Internet and its tools have had a significant
influence in the way business is done
through out the world. It ahs brought
inefficiency, proper utilization of resources,
quick and better decision making. It has
opened new ways for the business to reach
the customer which is significantly cheaper,
but it ahs also shifted the balance of power
in the hands of customers, as these tools
with allowances for normal wear." For
example, with auto leases some mileage
amount could be stated and appearance,
damage to the paint and glass may be
specified. The arrangement about the
condition of the returned asset is significant
to the lessor because it helps him determine
how much he must charge to make a profit
on the asset leased. The value of the asset
at the end of the lease period is called the
residual value. If the residual value is zero
then the lessor had received enough
amounts from the lessee to buy a new one.
If there is some residual value then the
payments received should only have
compensated the lessor for the reduction in
value.
In case, the lessee wants to make
improvement in the asset, the cost will be
borne by the lessee which he could recover
from the owner during the lease period itself/
before the expiry of it. Claims cannot be
enforced after the expiry of the lease period.
But if the agreement does not permit such
improvement and contains a condition that
it should be returned in original condition
that might result in liability on the part of the
lessee. Most of the lessees claim that they
can not claim ownership over the asset and
some times can not even sublease the
asset. Most of the companies prefer using
lease method because they can use the
asset without paying the full cash price of
the asset.
Accountants are of the opinion that lease
involves future payments for a specified
period and it is mandatory for the
organizations (lessees) to disclose the same
in the financial statements but generally
lessees do not do it. Not reporting this
information in the balance sheet might result
in overstatement of return on assets or
understatement of liability which is against
the accounting convention of disclosure and
materiality.
In case of human capital, one can not claim
ownership over them as in the case of lease.
Residual value of the human capital can
never be equal to zero but can be more or
less than the human capital borrowed.
Residual value is real but determination is
a difficult process. Even this method would
be discounted by the accounting
professionals due to this reason.
Knowledge Manager and Tools for Excellence
give them the ability to interact, have
information, instantly to the customer.
These tools give minority, though how small
in number an equal footing, which
theoretically should lead to a better world
and better decision making. But we have to
also live by the fact that every individual can
not possess complete knowledge, some
Contingent liability method
In accounting language, contingent liability
is an anticipated liability that may or may not
become real and it depends on the occurance
of a particular event. Accountants classify the
possibility making such payments:
l Probable-The future event is likely to
happen.
l Reasonably possible-the chance of
occurance of the event is more than
remote but less than likely.
l Remote-the chance of the occurance of
the event is almost negligible.
"The accounting standards say a liability
should be recorded and charged to expense
if two conditions are satisfied: There is
information that makes it probable that a
liability has been incurred; and the amount
of the loss can be reasonably estimated.
For example, a wrongful death suit of an
employee has been filed against your
company and you know that your policies
and practices for safety were not safe
enough such that you would have difficulty
defending against the suit, then you will
need to estimate the total value of that
employee, which will include the employee's
earning potential, the value of lost emotional
relationships and guidance, and report that
as a liability. The so called Best HR
practices" are crafted in such a manner to
shift the contingent liability from a
classification of probable to remote. The
method for determining the amount of
human capital loaned to the company and
the method for calculating the borrowed
human capital liability account will be
determined by accounting convention The
imputed amount of human capital that the
employee loans the employer could be used
to calculate the potential amount of the
contingent liability in many cases. Proper
HR programs for recruitment, training,
safety, compensation, adaptation,
termination and benefit administration are
not prevalent in the organization, the
classification of the contingent liability
moves from remote to probable. Better HRM
practices are designed to move the
contingent liability toward the remote or zero
probability. In the absence of excellent HR
management programs, an accountant
should be forced to establish and report
some contingent liability.
u H
times choices have to be made from among
the least worst of the options available.
The answer lies in the ability of human race
to transform it self to the next level, the level
of objective thinking. So these are not tools
for freedom or for spreading anarchism.
They are simply tools how we use and
respond to.
u H
| HRD News Letter | December 2007, Vol.23, Issue:9 37 |