Final answer:
Josh's land purchase is not immediately deductible as an ordinary and necessary business expense. The $5,400 spent for the driveway could possibly be capitalized and depreciated. While accounting profit only considers explicit costs, economic profit considers both explicit and implicit costs.
Step-by-step explanation:
In the provided scenarios, Josh has made expenditures related to his business expansion. The purchase of the land is a capital expense and is not deductible as an ordinary and necessary business expense in the year it is purchased. Instead, the land constitutes a capital asset, its cost will usually be recovered through depreciation, amortization, or cost recovery when the property is sold.
However, the $5,400 paid for the construction of a new driveway is a different kind of expense. If the driveway is solely for business use and is expected to last for more than one year, it could be considered a capital improvement to the business property. This means that while the cost cannot be fully deducted in the year it was paid, it can be capitalized and depreciated over its useful life.
Implicit costs also play a critical role when considering economic profit versus accounting profit. Accounting profit considers only the explicit costs like office rental and salaries but does not take into account opportunity costs. Economic profit deducts both explicit and implicit costs from revenues.