P2 December 2013 Cash flow Q

Could someone please simplify/explain the answer to part (i) Cashflow Q ( the renovation of building, revaluation & grant received), I cant follow the answer given. In particular why the 2m that was credited to PPE is reversed….I thought you could deduct grants from carrying value of asset? And also why is 3m credited to retained earnings? Also I would have thought only the 3m would be included in additions to assets and the 2m grant amount would be excluded?

Thanks