Accounting Case Study Analysis: Pepsi's Contract with Madonna

This case study analyzes the accounting and financial implications of the contract between Pepsi and Madonna. The report examines the contract terms, the accounting consequences of Madonna's actions and the public's reaction, and the resulting impact on Pepsi's brand image, financial reporting, and asset impairment. The analysis includes journal entries and a discussion of the contract's failure. The case study explores the financial ramifications of Pepsi's decisions, including the payment to Madonna and the impact on her album sales. The conclusion emphasizes the importance of fulfilling contract obligations. This student assignment provides a comprehensive overview of the accounting and financial aspects of the Pepsi and Madonna case.

RUNNING HEAD: Digital Media influences the student’s lives
0
Pepsi
Accounting and reporting
Case study analysis
Name of the student:

Accounting Case study analysis
1
Table of Contents
Introduction...........................................................................................................................................1
Answer to question no-5.......................................................................................................................2
Conclusion.............................................................................................................................................4
References.............................................................................................................................................5

Accounting Case study analysis
2
Introduction
In this report, case study of Pepsi Company has been analysed. It is the advertisement
contract between the Coca-Cola and Pepsi, the corporate kings of soda, George Michae,
Madona and TV channels and other parties who directly and indirectly affected by
the contract such as religious groups. This contract occurs when the Pepsi wanted
to promote Madona for it’s the promotional of its Coca- cola and Pepsi drinks on
international level. The terms of contracts were to acts in the best interest of the
advertisement so that advertisement formulated could reach the potential clients.
There were several accounting issues such as loss of invested capital, brand image,
impairment of assets and reduction in the given value of organization.
Answer to question no-1
The contract between Pepsi and Madona was the normal contract but due to her
song haired in the market, Pepsi had to face high amount of criticisms on
international level. It has shown negative impact on the society overall turnover of
company. In the starting, the payment made to Madona by the Pepsi was booked as
preliminary expenditure or miscellaneous assets and eventually, due to negative
impact of the Madona acts, it becomes responsibilities of Pepsi and resulted to high
amount of its brand image (Taraborrelli, 2001).
Answer to question no-2
Madona was working in the best interest of her work and due to the negative
factors of society and wrong interpretation of the people living in country, she had
to face high amount of criticisms from the religious groups of people. It somehow,
eventually impacts the brand image of company and impaired the assets of PEPSI.
In terms of respective promises of each other, Pepsi failed to perform its contracts
and dropped Madona like a hot potato. It failed to provide sponsorship of
Madonna’s world tour which was the biggest failure of Pepsi to perform its
undertaken contract.
Promises of each party towards the contract
Madona- She will perform or acts in all the advertisement for which she would be
called up.

Accounting Case study analysis
3
Pepsi- It will have to make $ 5 million payment to madona and sponsor her world
tour.
Pepsi failed to perform its promise as decided in the contract due to the negative
comments of the religious people on the latest aired music show of Madona
(Ritchie, 1958).
Answer to question no-3
There were several accounting consequence and ramified outcomes of what each
party did which are given as below
Pepsi- As per the contract made between Madona and Pepsi, it has to make $ 5
million payment to Madona and sponsor her world tour. It failed to provide the
world tours and cancelled the contract with the Madona. The main accounting
consequence and ramified outcomes in this case was related to loss of make $ 5
million payment to Madona which was kept by her as compensation to non-
performance of contract by Pepsi (PEOPLESOFT,)
Madona- There was no negative acts performed by Madona. However, due to her
aired music, some of the religious group of persons protested against her. It was
negatively taken by Pepsi and eventually she cancels the contract with her. It is
shown that she had to indirectly face the loss of its monetary benefits of
sponsorship of international world tour due to its aired acts (Treitel, 2003).
Answer to question no-4
Journal entries passed by Madona in her books after first commercial add
compensation
Cash A/c Dr, $ 5 million
To Pepsi A/c $ 5 million
Note- (Sponsor world tour amount will not be recorded due to its intangible
benefits)
Journal entries passed by Pepsi books after first commercial add compensation
Commercial ADD A/c Dr, $ 5 million

Accounting Case study analysis
4
To Madona A/c $ 5 million
Note- (Sponsor world tour amount will not be recorded due to its intangible
benefits)
Answer to question no-5
There were no negative impacts on the sales of Madonna’s Album. However, she
had to face loss of Sponsoring of world tour amount by the Pepsi. The overall sales
of her Album were consistently rising and shown the positive outlook for the career.
It is observed that people find no problem in her performance nor were there any
negative outlook shown by her. The song aired was liked by most of the people and
some of them completely rejected the song on the basis of issue related to religion
(Taraborrelli, 2001).
Accounting entries to book her Album Sales
Cash A/C Dr XXXX
To Album Sales XXXX

Accounting Case study analysis
5
Conclusion
Both parties Pepsi and Madona act in the best interest of their own.
However, Pepsi did have to pay compensation to Madona due to the failure of its
promise as per the contract laws and regulation. This has been observed that each
and every parties to the contract are obliged to perform the contract as per the
contracts conditions and rules.

Accounting Case study analysis
6
References
Love-Tulloch, J.K., 2012. " The Choice of a New Generation":" Pop" Music, Advertising, and Meaning
in the MTV Era and Beyond (Doctoral dissertation, UCLA).
PEOPLESOFT, I., MUSTANG DAILY.
Taraborrelli, J.R., 2001. Madonna: an intimate biography. Simon and Schuster.
Ritchie, M.L.C., 1958. Encyclopedia> Madonna (entertainer). age.
Treitel, G.H., 2003. The law of contract. Sweet & maxwell.