3 important methods for computing the value of employees in an Organization

3 Methods used to compute the value of an employees in an organisation are:

a. Valuation at cost:

Under this method, the employees of an organisation are evaluated on the basis of the cost which the organisation has incurred in selecting and training them. It should be noted that under the traditional accounting system, this cost is treated as revenue expenditure and is charged to the profit and loss account. But in human resources accounting, this-cost is capitalised and is shown as an asset on the balance sheet.

b. Valuation at economic cost:

Under the first method, the human asset is shown in the balance sheet at its historical most which is not enough if the balance sheet is to serve as a health chart of the organisation. It is essential for this purpose to show all assets (including the human asset) on the balance sheet at their economic value.

This is the capitalised value of every employee in an organisation can be found out by estimating his remaining future earnings from employment and then, discounting them at the appropriate rate of interest.

The aggregate of such present discounted values is then shown as the value of the human resources assets on the balance sheet. It is the value of the benefit expected to accrue that should be capitalized and not the amount to be spent for the use of the asset.

c. Valuation at replacement cost:

Employees can also be valued at their replacement cost, i.e., the amount which will be needed to replace them completely. It should be noted that it is always impossible to replace the present personnel by a new set of people and still have the same organisation.