44 Fluffort (BPP)

There is nothing impossible or incorrect in the question!! What you are asking about is basic accounting. You don't repay shares with retained earnings - you need cash. The question specifically says that the figure for retained earnings in 20X6 can be assumed to be in the net increase in cash (which you would assume anyway!). So cash goes up by 2.4M and retained earnings increase by 2.4M - it balances. The now have 10M cash (7.6 + 2.4) and they repay the shares. So cash goes down by 10M and share capital goes down by 10M.