PraveenIP Started The Discussion:
Dear Fellow HR,
Will you be able to provide me with an example on the Lev and Schwartz methodology of Human capital accounting? I would need to understand how the calculation actually works.
Thanking you in advance for your help.
may this will help u a bit....
Lev and Schw artz’s model is based on human capital theory,
which recognizes human capital as one of several forms of holding wealth for a business enterprise, such as money, securities and physical capital. In this model of accounting, human capital is treated like other forms of earning assets and thus is an important factor explaining
and predicting the future economic growth of the company.
Lev and Schw artz’s accounting model is based on the measurement of human capital using the formula:
Vr = ÓTt=r I(t)/(1+r)t-r,
where Vr = the human capital value of a person “r” years old;
I(t) = the person’s annual earnings up to retirement;
r = a discount rate specific to the person;
T =retirement age
The formula uses an earnings profile, which is a graphic mathematical
representation of the income stream generated by a person. Typically, earnings increase with age. As the person reaches retirement age, productivity declines as a result of technological obsolescence and health deterioration.
This model postulated in 1971 remains largely unused as a result of criticism from Accounting professionals who argue that human capital cannot be purchased or owned by the firm and therefore would not be recognized as an asset. Additionally, critics of human capital theory state that labor force does not have a “service potential”; meaning employees are paid for rendering current services and no asset is formed by these
Thanks for your comments. Do you have an examle calculation for the same? It would help us understand better if we have a sample calculation based on an assumption of a company say employing 10 personnel with age groups 23 to 30 and 30 to 40.
Your reply will help me a lot.
Thanks in advance.
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