What transactions are recorded at the spot rate according to IAS 21?

In accordance with IAS 21, revenue and expense items are recorded at the spot rate at the date of the transaction. This is because revenue and expenses are typically realized or incurred during a specific period and are reflected in the financial statements at the exchange rate applicable on the transaction date.

This approach ensures that these items accurately represent the cash flows at the time they occur, providing a true and fair view of the company’s financial performance in its functional currency. Using the spot rate allows for proper matching of revenues and expenses with the corresponding exchange rate, which is crucial for evaluating the company's financial health.

When considering other transaction types, non-monetary items such as fixed assets are often measured at historical cost or at rates established at the time of the transaction, rather than the current spot rate. Similarly, equity transactions are usually recorded at the exchange rate on the date of the transaction, and fixed asset transactions may involve different measurement bases, so they are not recorded solely at the spot rate. Understanding these distinctions is fundamental in applying the correct accounting treatment under IAS 21.