Question

The developments in accounting seems to be the logical offshoot of traditional structure of accounting. The systems like human resource accounting, inflation accounting, and social cost accounting are expected to provide useful information to various users of accounting information". Arora, Parvinder Kumar, Recent Developments in Accounting: A Study of Perceptions of Users of Accounting Information. The Management Accountant, Vol. 29, No. 4, pp. 246- 249, April 1994. Required: Briefly explain the meaning and usefulness of these concepts to users of accounting information.

Answer 1

Human Resource Accounting is the process of assigning, budgeting, and reporting the cost of human resources incurred in an organization, including wages and salaries and training expenses.Human Resource Accounting is the activity of knowing the cost invested for employees towards their recruitment, training them, payment of salaries & other benefits paid and in return knowing their contribution to organisation towards it's profitability.

There are certain benefits for accounting of human resources, which are explained as follows:

1. The system of HRA discloses the value of human resources, which helps in proper interpretation of return on capital employed.

2. Managerial decision-making can be improved with the help of HRA.

3. The implementation of human resource accounting clearly identifies human resources as valu­able assets, which helps in preventing misuse of human resources by the superiors as well as the management.

4. It helps in efficient utilization of human resources and understanding the evil effects of labour unrest on the quality of human resources.

5. This system can increase productivity because the human talent, devotion, and skills are consid­ered valuable assets, which can boost the morale of the employees.

6. It can assist the management for implementing best methods of wages and salary administration.

INFLATION ACCOUNTING

Adjusting financial statements to show a firm's real financial position in inflationary times. It aims to indicate how rising prices and lower purchasing power of the currency affect a firm's cost of refinancing its productive assets, and of its ability to maintain an adequate level of profit on the capital employed.

The following are the advantages:

1. Since assets are shown at current values, Balance Sheet exhibits a fair view of the financial position of a firm.

2. Depreciation is calculated on the value of assets to the business and not on their historical cost—a correct method. It facilitates easy replacement.

3. Profit or loss is determined by matching the cost and the revenue at current values which are comparable—a realistic assessment of performance.

4. Financial ratios based on figures, adjusted to current value, are more meaningful.

5. Inflation accounting gives correct information, based on current price to the workers and shareholders. In the absence of this, workers may claim for higher wages and shareholders too claim for higher dividend.

social cost accounting

“Social Accounting is the application of double entry book keeping to social economic analysis.” —Kohler

The important benefits of social accounting are as follows:

(1) A firm fulfills its social obligations and informs its members, the government and the general public to enables everybody to form correct opinion.

(2) It counters the adverse publicity or criticism leveled by hostile media and voluntary social organisations.

(3) It assists management in formulating appropriate policies and programmes.

(4) Through social accounting the firm proves that it is not socially unethical in view of moral cultures and environmental degradation.