The Value of Human Capital

This assignment explores the multifaceted concept of human capital across diverse sectors. It examines how human capital contributes to individual success, organizational performance, and societal well-being. The provided literature review highlights the growing importance of human capital in a knowledge-based economy and discusses various factors influencing its development and value.

Running head: ACCOUNTING AND FINANCIAL MANAGEMENT
Accounting and Financial Management
Name of the Student:
Name of the University:
Author’s Note:

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ACCOUNTING AND FINANCIAL MANAGEMENT
Table of Contents
Task 1:.............................................................................................................................................2
Task 2:.............................................................................................................................................4
Task 3:.............................................................................................................................................6
Requirement a:.............................................................................................................................6
Requirement b:...........................................................................................................................13
Reference List and Bibliography...................................................................................................16

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ACCOUNTING AND FINANCIAL MANAGEMENT
Task 1:
In the books of PARISS Plc.
Statement of Profit or Loss
For the period ended 31 December 2016
Particulars Amount
£’000
Revenue 8500
Cost of Sales -3374.25
Gross profit 5125.75
Distribution and administrative expenses -3000
Investment income (dividend from SwP) 175
Investment income (profit from Angel) 85.5
Finance cost -263
Profit before tax 2123.25
Income tax expense -890
PROFIT FOR THE YEAR 1233.25

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ACCOUNTING AND FINANCIAL MANAGEMENT
In the books of PARISS Plc.
Statement of Financial Position
As at 31 December 2016
Particulars Amount Amount
£’000 £’000
Non-current assets:
Property, plant and equipment 8500
Intangible assets 5700
Investment in SwP 3500
Investment in Angel 3085.5
Leasehold Assets 94.25
20879.75
Current assets:
Inventories 4000
Trade receivables 2000
6000
Total assets 26879.75
Equity and reserves:
Share capital (£1 nominal value equity shares) 4000
Retained earnings 7591.25 11591.25
Non-current liabilities
Long term loan notes 9700
Lease Liability 88.5
9788.5

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ACCOUNTING AND FINANCIAL MANAGEMENT
Current liabilities:
Trade payables 4500
Bank overdraft 1000
5500
Total Equity and liabilities 26879.75
Task 2:
In the books of PARISS Group Plc.
Consolidated Statement of Profit or Loss
For the period ended 31 December 2016
Particulars Amount
£’000
Revenue 12700
Cost of Sales -5302.3
Gross profit 7397.75
Distribution and administrative expenses -3820
Investment income (dividend from SwP) 0
Investment income (profit from Angel) 85.5
Finance cost -315
Profit before tax 3348.25
Income tax expense -1150
PROFIT FOR THE YEAR 2198.25
Profit attributable to:

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ACCOUNTING AND FINANCIAL MANAGEMENT
Shareholders of PARISS Plc. 1402.65
Non-controlling interest (W3) 795.6
2198.25
In the books of PARISS Group Plc.
Consolidated Statement of Financial Position
As at 31 December 2016
Particulars Amount
£’000
Amount
£’000
Non-current assets:
Property, plant and equipment 14260
Intangible assets 7850
Goodwill 1463
Investment in SwP 0
Investment in Angel 3085.5
Leasehold Assets 94.25 26752.8
Current assets:
Inventories 5492
Trade receivables 2900
8392
Total assets 35144.8
Equity and reserves:
Share capital (£1 nominal value equity shares) 4000
Retained earnings 8560.65
Equity attributable to shareholders 12560.7

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ACCOUNTING AND FINANCIAL MANAGEMENT
Non-Controlling interest 789.6
Total equity
Non-current liabilities
Loan notes 11600
Contingent Liability 1203
Deferred Liability 1003
Lease Liability 88.5 13894.5
Current liabilities:
Trade payables 6500
Bank overdraft 1400 7900
Total Equity and liabilities 35144.8
Task 3:
Requirement a:
Workings:
Goodwill Computation:
Particulars
Carryin
g
Amount
Fair
Valu
e
Amoun
t
Share Capital 1300 1300
Retained Earnings 3600 3600
Contingent Consideration -800 -800
Deferred Consideration -1000 -1000
Land 40 100 60
Research & Development 150 150

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ACCOUNTING AND FINANCIAL MANAGEMENT
Contingent Liability -400 -400
Net Fair Value of
Identifiable Assets &
Liabilities 2910
Less: Non-Controlling
Interest 873
Net Value of the
Investment 2037
Purchase Consideration 3500
Goodwill 1463
Consolidation & Adjustment Entries:
Date Particulars
Amoun
t Amount
3/31/2016 Share Capital A/c. Dr. 910
Retained Earnings A/c. Dr. 2520
Goodwill A/c. 1463
To,
Business Combination
Valuation Reserve A/c. 1393
To,
Investment in SwP Ltd.
A/c. 3500
Property, Plant & Equipment
A/c. Dr. 60
Intangible Assets A/c. Dr. 150
Business Combination
Valuation Reserve A/c. Dr. 1990
To, Contingent Liability A/c. 1200
To, Deferred Liability A/c. 1000
Share Capital A/c. Dr. 390
Retained Earnings A/c. Dr. 1080
To,
Business Combination
Valuation Reserve A/c. 597

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To, NCI A/c. 873
12/31/201
6 Investment Income A/c. Dr. 175
NCI A/c. Dr. 75
To, Dividend Paid A/c. 250
Revenue A/c. Dr. 200
To, Cost of Sales A/c. 192
To, Inventory A/c. 8
NCI A/c. Dr. 2.4
To, NCI share of Profit A/c. 2.4
Lease Expenses A/c. Dr. 20
Lease Liability A/c. Dr. 5.75
To, Cost of Sales A/c 25.75
Leasehold Assets A/c. Dr. 94.25
To, Lease Liability A/c. 94.25
Investment in Angel Ltd. 85.5
Investment Revenue A/c. 85.5
Consolidation Worksheet:

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Particulars PARISS SwP Debit Credit Group Debit Credit Parent
Revenue 8500 4400 5 200 12700 12700
Cost of Sales -3374.25 -2120 -192 5 -5302.25 -5302.25
Gross Profit 5125.75 2280 7397.75 7397.75
Distribution & Administrative
Expenses -3000 -820 -3820 -3820
Dividend from Swp 175 0 4 175 0 0
Investment Income from
Angel 85.5 85.5 85.5
Finance Cost -263 -52 -315 -315
Profit before Tax 2123.25 1408 3348.25 3348.25
Income Tax -890 -260 -1150 -1150
Profit for the year 1233.25 1148 2198.25 2.4 6 2200.65
Retained Earnings
(31/12/2015) 6358 3602 1,3 3600 6360 6360
7591.25 4750 8558.25 8560.65
Dividend Paid -250 -250 4 0 0
Retained Earnings
(31/12/2016) 7591.25 4500 8558.25 8560.65
Share Capital 4000 1300 1,3 1300 4000 4000
BCVR 2 1990 1990 1,3 0 0
NCI 0 4,6 77.4 873 3 795.6
Total Equity & Reserves 11591.25 5800 12558.25 12560.65
Bond 9700 1900 11600 11600
Contingent Liability 1200 3 1200 1203
Deferred Liability 1000 3 1000 1003
Lease Liability 88.5 88.5 88.5
Trade Payables 4500 2000 6500 6500
Bank Overdraft 1000 400 1400 1400
Total Equity & Liability 26879.75 10100 34346.75 34355.15
Property,Plant & Equipment 8500 5700 2 60 14260 14260
Intangible Assets 5700 2000 2 150 7850 7850
Goodwill 1 1463 1463 1463
Investment in SwP 3500 3500 2 0 0
Investment in Angel 3085.5 3085.5 3085.5
Leasehold Assets 94.25 94.25 94.25
Inventories 4000 1500 8 5 5492 5492
Trade Receivables 2000 900 2900 2900
Total Assets 26879.75 10100 35144.75 35144.75
Adjustments NCI
Briefing Notes:
There are various adjustments that have been made, therefore these errors and
adjustments have been highlighted. The Australian Accounting Standards Board in the AASB
127 has defined the accounting treatment for the consolidated entities. The particular standard
has been applied in the preparation and presentation of the consolidated financial statements in
case for a group of entities under the control of the parent. In order to understand the accounting
treatments that have been applied for the consolidated entities, the term consolidated financial

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statements must be understood properly. Consolidated financial statements refer to the financial
statements that have been prepared for a group presented as those of a single economic entity.
In AASB 117, it has been mentioned that the exact consolidation procedure that should
be followed while preparing the financial statements. An entity should combine the consolidated
financial statements of the subsidiaries and the parent company by adding together the items of
assets, liabilities, income, equity and expenses. The essentials that have been stated in the AASB
117 about the financial statements is that the carrying amounts of the investments that has been
incurred by the parent company in the subsidiary entities along with the part of the equity
allotted to each subsidiary should be eliminated.
The identification of the minority interests in the profit or loss of the consolidated entities
should also be efficiently executed.
The minority interests in regards to the net assets of the subsidiary companies have to be
identified and separated.
The intragroup balances, transactions, income, and expenses have to be eliminated in full.
The financial statements of the subsidiary companies and the financial statements of the
parent company that should be utilized in the preparation of the consolidated financial statements
should be of the same reporting date. In case the financial statements of the subsidiary and the
financial statements of the parent company are of different dates then the additional financial
statements have to be prepared along with the consolidated financial statements.
The accounting policies utilized for the preparation of the consolidated financial
statements should be uniform in all cases and for all transactions.

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The expenses and income of a subsidiary that are included in the consolidated financial
statements should be entered in the books of accounts from the acquisition date. This has been
mentioned in AASB 3.
It should be further noted here that the investment in an entity has to be accounted in
terms of ASSB 139 that is Financial Instruments: Recognition and Measurement.
The minority interests have to be represented in the consolidated financial statements
under equity that has been separated from the shareholder’s equity fund of the parent company.
The profit or loss that has been derived in total has to be attributed to the shareholders
and minority interests of the parent company.
The losses in case of a minority in a consolidated subsidiary might be greater than the
minority interest in the equity of the subsidiary. The amount by which the loss is greater than the
minority interest in the equity along with other losses that is applicable to the minority has to be
allocated against the majority interest. If the case is such that the subsidiary earns profit then
such profit has to be allocated to the majority interest until the previously share of losses of the
minority that has been absorbed by the majority is subsequently recovered.
In case the subsidiary owns a huge amount of outstanding cumulative preference shares
that have been held by the minority interests and has been essential classified as equity, the
parent company computes the share of gain or loss after proper adjustment of the dividends. This
is done in regards to the shares irrespective of the fact that the dividends have been declared or
not.
The above mentioned points are essentially the steps that have been considered in
preparing the consolidated financial statements. However, there have been various adjustments

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that are executed in case of preparing the consolidated financial statement. There has been an
observation that in consolidation, the lease expenses have been wrongly recorded in the cost of
sales and therefore adjustments have been made and the lease expense has been recorded in the
finance cost correctly. It is even seen that the lease assets and liabilities have been not been
recorded and therefore during the adjustment the lease assets and liabilities have been recorded
effectively. The accounting treatments that have been utilized for correcting the errors in case of
the lease expenses is based on the principles that have been compiled and presented in the AASB
117.
It has been further observed that the consolidation procedures that are mentioned in the
AASB 127 in regards to the preparation of the consolidated financial statements have not been
properly adhered to.
The construction of the consolidation that was done earlier was not accurate and had
various mistakes in it. However, the consolidation statement has been changed and has been
constructed effectively accordingly to the accounting standards that have been laid down by
IFRS. Pariss Plc has acquired SwP and Angel Plc but the acquisition of the company has not
been done in the consolidation value. The acquisition had to be done in the consolidated value
and therefore changes have been made in the same. There has been an observation that
investments and income has been attained by Angel Plc but in the consolidation, the income
from Angel was not recorded and therefore these incomes have been recorded after making the
adjustments. The recordings have been done according to the rules laid down by IFRS.
The calculations that have been with respect to NCI and Goodwill have not been done
accurately and there were mistakes in the amount that was discovered. Therefore, calculations
have been done in accordance to the rules laid down by IFRS and changes have been made with

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ACCOUNTING AND FINANCIAL MANAGEMENT
accordingly. These changes will be useful for the development of an effective and precise
financial statement that would be useful for Pariss Plc to maintain sustainability in the business
and maintain competitive edge.
Requirement b:
The process and the ability to assess critically the issues related to accounting plays a key
role in the employee development. Human capital by its nature is an increasing variable resource
that is hugely affected by the culture and the geography of the organization. The needs of the
human capital have even changed for the firm in accordance to the changing markets and
technologies. Hence, it is essential to manage and report human capital, which is a challenging
job but is essential to aid a company generate and optimise their value (Vomberg, Homburg and
Bornemann 2015). The financial statements that I have gone through for SwP Plc and Angel Plc
does not contain any value for the human capital. In the financial statement of SwP Plc, there are
fair value for the assets and liabilities but the fair values have not been included in the financial
statement. SwP Plc has not been able to understand the whether value of human capital has an
impact on the share value of the firm. It is essential to understand the significance of the human
capital in the accounting issues of the firm and after the assessment if the value of human capital
has any role to play then it can be added in the financial statement.
On the other hand, Angel Plc have reported the fair value of their assets and liabilities in
their financial statements but the values that have been disclosed are lower than the actual fair
value that have been computed. The observation suggests that the share value of the firm has
been high and it is in the feeling that increased share value has been due to the excellent and
skilled workforce. This explains that reputation of the firm has been reliant on the performance
of the employees and therefore the company needs to disclose the fair value of human capital in

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ACCOUNTING AND FINANCIAL MANAGEMENT
their financial statement. Hence, both the companies have not disclosed the value of the human
capital anywhere in their financial statement.
The value of human capital is essential to be conveyed to the financial data users as they
would be able to understand the effectiveness of the employees in the rise in the revenue and the
rise in the share value. The investment in the human capital is helpful for the business and the
economic growth for the profit of the employers, employees and the economy as a whole. It is
known that employees are most significant assets of the company and therefore challenges
regarding the same has to be met (Sundaramurthy, Kor and Pukthuanthong 2015). The
information about the needs of the human capital requires to be treated with distinct
accountability and rigour as it is afforded in the financial capital. The management of any
organization has understood the essentiality of the human capital in the strategic performance.
The incorporation of the human capital into the mainstream aspects of the business decisions has
significant impacts that explains that more effective human resource allocation would lead to
increased level of skills and rise in the level of productivity and innovation.
The companies that have incorporated the idea of reporting have the knowledge and the
need to construct the role of the human capital that has an impact on the present and future
performance (Koc 2015). The understanding of the connection between the organizational results
and value of human capital brings forth the benefits for the business. The reporting of human
capital to the users of the financial information can even have a double effect on the human
capital management that influences the developing methods and effective results. This is even
helpful in filling in the information gap that would be helpful in giving out priceless insights to
the users of the capital and the financial data and thereby assisting the company with the
potentiality to succeed in the long, medium and short term. This an aspect of reporting in the

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initial phases of development and it is vital for the companies to convey the value of human
capital to the financial users. The value of human capital of given to the financial users is helpful
to the users in understanding the significance of the employees and how they contribute to the
development of the organization financially and operationally (Bay and Rozman 2015). Human
capital is currently regarded as the essential driver for the success of an organization with the rise
in significance being put forth on having an understanding of the role. It is generally looked upon
as the most key asset that is existent in a firm as the business framework becomes focused on the
individual, technology and capacity.
The value of human capital is needed to be communicated in the financial statement and
the even in the other reports like the diligence report within which the effectiveness of human
capital and its influence on the income and financial statements can be understood. SwP has not
incorporated the fair value of the assets and liabilities but Angel Plc has disclosed the assets and
liabilities. However, as it is seen that the rise in the share price of Angel Plc has been due to the
reputation of the skilled workforce and therefore, the employees act as assets to the company.
Therefore, it is essential that fair value of human capital has to be shown in any of the financial
reports and statements (Oh et al. 2017). The employees are the reason why the customers are
purchasing their product and changes in the skilled employees can hamper the profit level of the
company. It is essential that a company must disclose the their assets and liabilities so that the
financial data users can have an idea about the operational process of the firm and therefore
value of human capital has to be disclosed in the financial report or in the financial statement.
The assessment therefore suggests that fair value needs to be recognised in the financial
statement position of Angel.

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Reference List and Bibliography
Acemoglu, D., Gallego, F.A. and Robinson, J.A., 2014. Institutions, human capital, and
development. Annu. Rev. Econ., 6(1), pp.875-912.
Anaduaka, U.S., 2014. Human capital development and economic growth: The Nigeria
experience. International Journal of Academic Research in Business and Social Sciences, 4(4),
p.25.
Bay, S.I. and Rozman, A.M., 2015. HUMAN CAPITAL AS A FOUNDATION FOR
ENTERPRISE VALUE GROWTH. Aktual'ni Problemy Ekonomiky= Actual Problems in
Economics, (174), p.248.

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ACCOUNTING AND FINANCIAL MANAGEMENT
Chattopadhyay, S. and Choudhury, P., 2017. Sink or Swim: The Role of Workplace Context in
Shaping Career Advancement and Human-Capital Development. Organization Science, 28(2),
pp.211-227.
Costanza, R., de Groot, R., Sutton, P., van der Ploeg, S., Anderson, S.J., Kubiszewski, I., Farber,
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Goldring, E., Grissom, J.A., Rubin, M., Neumerski, C.M., Cannata, M., Drake, T. and
Schuermann, P., 2015. Make room value added: Principals’ human capital decisions and the
emergence of teacher observation data. Educational Researcher, 44(2), pp.96-104.
Hmieleski, K.M., Carr, J.C. and Baron, R.A., 2015. Integrating discovery and creation
perspectives of entrepreneurial action: The relative roles of founding CEO human capital, social
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Ketchen Jr, D.J., Crook, T.R., Todd, S.Y., Combs, J.G. and Woehr, D.J., 2017. Managing
Human Capital. The Oxford Handbook of Strategy Implementation, p.283.
Koc, M., 2015, April. Review of human capital development system in Turkey for a sustainable
knowledge society perspective and a recommended framework for STE policies for 21st century.
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Manuelli, R.E. and Seshadri, A., 2014. Human capital and the wealth of nations. The American
Economic Review, 104(9), pp.2736-2762.

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Oh, I.S., Blau, G., Han, J.H. and Kim, S., 2017. Human Capital Factors Affecting Human
Resource (HR) Managers' Commitment to HR and the Mediating Role of Perceived
Organizational Value on HR. Human Resource Management, 56(2), pp.353-368.
Roberts-Mahoney, H., Means, A.J. and Garrison, M.J., 2016. Netflixing human capital
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Skarp, K., Varis, K. and Kettunen, J., 2017, January. Evaluation of the top-down and bottom-up
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Sundaramurthy, C., Kor, Y.Y. and Pukthuanthong, K., 2015, January. The Role of Board
Leadership Structure in Enhancing the Value of Directors' Human and Social Capital.
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Vomberg, A., Homburg, C. and Bornemann, T., 2015. Talented people and strong brands: The
contribution of human capital and brand equity to firm value. Strategic Management
Journal, 36(13), pp.2122-2131.
Wright, P.M., Coff, R. and Moliterno, T.P., 2014. Strategic human capital: Crossing the great
divide. Journal of Management, 40(2), pp.353-370.