What happens to the application money received when applicants accept the share allotment offer?

It is transferred to the share capital account

The correct answer is option 2- It is transferred to the share capital account.

When applicants accept the share allotment offer, the application money they initially paid becomes a part of the share capital of the company. This money is no longer held separately in the share application account; rather, it is formally recognized as part of the capital structure of the company.