Abstract
While most firms acknowledge the importance of their human resource assets, no firm has as yet tried to show it in its balance sheet. This is due to three main problems: firstly, the absence of a generally acceptable measurement of the value of this asset; secondly, the apparent breach of existing accounting standards and thirdly the possible tax implications. This article offers a solution to all these problems. The author proposes that the financial value of Human Resource Asset should be equal to the excess of NPV of a firm with existing staff over NPV of the same firm computed on the assumption of having an average quality of staff. Once measured, this asset can be brought to books through a formal accounting entry, debiting Human Resource Asset (to be shown in the Balance Sheet as an intangible asset) and crediting Human Resource Reserve (to be shown in the balance sheet as a non-distributable part of equity). The author also proposes periodic adjustment and prescribes accounting treatment for the same.
Safdar Ali Butt. (2017) REVISITING HRA / HRR PREPOSITION: HOW TO BRING HUMAN RESOURCE ASSET INTO BALANCE SHEET, Jinnah Business Review, Volume 5, Issue 1.
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