FFF,
You are correct with your definition of QNH.
However, if increase the pressure to sea level assuming ISA and then take it back up past the station elevation assuming ISA (which is what the altimeter does), this makes little difference. So both the adjustment ot arrive at QNH and the subsequent reading on the altimeter (indicated altitude) all assume ISA....it's apples and apples.
You are given information that the actual temperature is ISA - 10. Yes this could vary with height (not a constant lapse rate) but if ignore any such variation, you can take the true elevation of the station, reduce it to sea level using the actual temperature and then bring it up to the true altitude of 12,000 (the MSA) again using the actual temperature. You thus have your true altitude.
In both cases the lapse rate and pressure change from the station to sea level is the exact same as the lapse rate and pressure change from sea level back up to the station (but the sign changes) so who cares how high the station is.
Even the basic whizz wheel - the CRP1 which PPLs use has a facility for calculating true altitude.
I don't see why we need to make a simple whizz wheel question too complicated.
Regards,
DFC