(SIMPLE MEANING OF DEPRECIATION AND ITS METHODS)

DEPRECIATION

In accountancy, depreciation refers to two aspects of the same concept:

1. the decrease in value of assets (fair value depreciation), and
2. the allocation of the cost of assets to periods in which the assets are used (depreciation with the matching principle).

A method of reallocating the cost of a tangible asset over its useful life span of it being in motion. Businesses depreciate long-term assets for both tax and accounting purposes. The former affects the balance sheet of a business or entity, and the latter affects the net income that they report. Generally the cost is allocated, as depreciation expense, among the periods in which the asset is expected to be used. This expense is recognized by businesses for financial reporting and tax purposes.

Methods of computing depreciation,

Methods of computing depreciation, and the periods over which assets are depreciated, may vary between asset types within the same business and may vary for tax purposes. These may be specified by law or accounting standards, which may vary by country. There are several standard methods of computing depreciation expense, including fixed percentage,straight line, and declining balance methods....

Straight Line Method of Depreciation:

A method of calculating the depreciation of an asset which assumes the asset will lose an equal amount of value each year. The annual depreciation is calculated by subtracting the salvage value of the asset from the purchase price, and then dividing this number by the estimated useful life of the asset

.

Reducing Balance Method of Depreciation:

Under reducing balance method, the depreciation is charged at a fixed rate like straight line method (also known as fixed installment method). But the rate percent is not calculated on cost of asset as is done under fixed installment method - it is calculated on the book value of asset. The book value of an asset is obtained by deducting depreciation from its cost. The book value of asset gradually reduces on account of charging depreciation. Since the depreciation rate per cent is applied on reducing balance of asset, this method is called reducing balance method or diminishing balance method. 

Human Resource Accounting

Meaning: Human resources are considered as an important asset and are different from the physical assets. Physical assets do not have feelings and emotions, whereas human assets are subjected to various types of feelings and emotions. In the same way, unlike physical assets human assets never get depreciated.

Therefore, the valuations of human resources along with other assets are also required in order to find out the total cost of an organization. In 1960s, Rensis Likert along with other social researchers made an attempt to define the concept of human resource accounting (HRA).

DEFINITION:

The American Association of Accountants (AAA) defines HRA as:

                   “HRA is a process of identifying and measuring data about human resources and communicating this information to interested parties”

              From the analysis of above definitions, it is clear that the human resource may be seen as the most fundamental of all available resources to an organization. Corporations cannot run by machines alone.

Objectives of HRA:

Rensis Likert described the following objectives of HRA:

1. Providing cost value information about acquiring, developing, allocating and maintaining human resources.

2. Enabling management to monitor the use of human resources.

3. Finding depreciation or appreciation among human resources.

4. Assisting in developing effective management practices.

5. Increasing managerial awareness of the value of human resources.

6. for better human resource planning.

7. for better decisions about people, based on improved information system.

8. Assisting in effective utilization of manpower.