Valuing Human Capital in balance sheet

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Permalink Reply by Werner Reisacher on June 2, 2010 at 2:24pm

Apart from the payroll related and other employment related taxes, there are no tax implications related to the value of a company's human capital.
There a many ways to measure the productivity of employees and to calculate the costs related to hiring and training new employees. The "value of the human resources" of a company is often talked about in connection with payroll negotiations, and granting of other incentives used to improve the "staff churn rate". (Ratio of staff turnover) I have however never seen companies expressing the value in monetary terms. And to the best of my knowledge, there are no accounting rules and regulations dealing with the valuation of human resources for accounting purposes.
The only time when the value of all "resources" of a company, including customer relationships, vendor relationships, purchasing power, location of the business, and brand recognition, is taken into consideration is at the time of the negotiation of a sale of the company. The difference between the sales price of a company and its book value is "the goodwill" which represents the summary of such intangible assets as the value of the company's human resources.
Werner Reisacher

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Permalink Reply by Kofi Koduah-Sarpong on June 3, 2010 at 7:03am

Additionally i think there was a case study on the issue involving Xsansa (don't know if i got the spelling right, this was back in 2001) and how they valued their human capital. I'll look through my archives if i can find you some reading material. In 2004, i do believe there was a report on New methods/models for financial reporting which also touched on measuring/valuing human capital.

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Permalink Reply by DOROTHY AK JAPAR on June 8, 2010 at 12:24am

Private and public sector accounting was different from each others. The way resources in and out also came from different ways where regulation and certain standards should be follow.

To capital the human being need a good understanding to the mission, vision, and goals in once organsation have being set up. If the profitablity is a core, they who can bring alot of money to the organisation should being valued a higher price since none of its affect the gain of the organisation. Asa result contribute to the country through the paying of income tax.

But for those in public sector, where the public security was the major of the visioin,mission or objective of their job task, they also should be label as a higher price asset. Without them whose take the responsibilty, example those in army force as well others in uniform unit. Although it's an expenses for the country.

To capitalise the human, have to go through the major or core activity of business. Activity of the business legal and follows the country standard as well contribute to the world in the end. Since we are in ONE world called EARTH.

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Permalink Reply by atambir on June 6, 2010 at 4:51pm

I feel value of human capital is incorporated in Balance sheet as good human capital of company contribute to its growth.

Many factors contribute to increase company's goodwill and human capital is prominent among other issues.

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Permalink Reply by John Brandow on June 7, 2010 at 3:19am

The only time we were required to value Human Capital was when a prospective company wished to insure their key staff members in case of death or disability. A "replacement" value is placed on such a person in terms of acquisition costs , possible down time whilst the process is going on and possible costs to hire temporary staff (and off course the possibility of such persons being available). There are no hard an fast rules as to how this is calculated. The impact of possible "business losses" due to this person's incapacity or death also needs to be taken into account.

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Permalink Reply by mohamed irshad on June 7, 2010 at 3:35am

I view this in an entirely different perspective.

Human Capital should be valued as you value assets taking into account the experience in a particular position [irrespective of the basic qualifications], certifications, productivity [relating revenue to sales, cost savings to operations, etc.] and loyalty [length of service in that particular organization]. If these parameters can be weighted as a standard benchmark, then Human Capital of various organizations can be compared once the aggregate of all employees in the organization.

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Permalink Reply by Ravi Kureemun on June 9, 2010 at 1:41am

I would like to point out the under IFRS, human capital does not meet the definition of an asset. As per the IASB Framework as assets is a resource controlled by an entity as a result of past events from which future econimic benefit is expected to flow.

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Permalink Reply by Zwelibanzi Sapula on June 7, 2010 at 4:13am

Well it is rather difficult to say how you value human capital. Lots of people suggest you put this in the goodwill section. But I think if you look at a company like Manchestor United. They have to value their players as those are what they make money on. How you would determine the value is rather subjective though. The idea of using replacement costs to value the person is not enough as people are not the same and their skills differe. It is a difficult one though.

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Permalink Reply by John Brandow on June 7, 2010 at 4:29am

The value of one person vs another in all probability cannot be measured in monetary terms. With the Soccer world cup being played in our backyard it is something that will be discussed around forums and around tv sets as players are measured against each other. The real value of a staff member will most probably never be really measurable. There is of course the value one places on oneself in a corporate environment. One of the problems here is the fact that a lot of training is done in-house and in most cases these are not worth anything should you leave that company.
We employ a program that will RPL such candidates to determine where they actually stand against
international training standards and what they will require to get a proper qualification taking into account their training and skills

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Permalink Reply by ahmed alsadig albashier on June 10, 2010 at 3:08am

IT IS DIFFICULT TO VALUE HUMAN CAPITAL BUT NOT IMPOSSIBLE TO PUT STANDARED TO ALL ITEMS CONTRIBUTE TO HUMAN VALUE . HAVING THOSE STANDAREDS HELPS IN PRICING HUMAN RESOURCE AND DEFINETLY ROSE EMPLOYEES MARKET. LET US ASSUME THAT COMPANY A VALUED ITS employees AND PUT UNDER ANY ASSET CATOGERY aproblem will arose when compny went into liquidation or even been aqusized which may resume in debatable value that the holding company may not aquire the company with all it s employees hence who bear the loss .any how its interesting subject which need more elaporation and discussion

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Permalink Reply by Nana Yaw Kwakye on June 7, 2010 at 6:07am

There is currently no accounting standard permitting the valuation of human capital on books. It is normally included as part of goodwill during takeovers albeit very subjective. Companies who are technically bias turn to have a good case as its pretty easy to demonstrate the development of staff over a period of time.
Hope it helps.

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Permalink Reply by Cathleen on June 7, 2010 at 6:26am

Thank you all for your answers I do appreciate it. The reason why I ask this question is for this reason, in our company there are allot of in-house training as well as traing of employees in grades schools ect and also we have the whole putting the right employees in the right places and in our division we are going to start the whole capturing of a knowledge database and it would just for me be appropiorate to have a place in the balance sheet for a Human Capital asset because the company are retaining these employees but thank you again

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