OK, I wouldn't worry about shifting sts between needles. If you decrease one stitch at the beginning of the row and increase one at the end then the stitch count on needles 2 and 3 will stay the same. So just leave those sts where they are. (If you start moving them you'll need a marker to show you where the k2togs are.)
If you k2tog on round 5, you're knitting the first k1p1 together. On round 6 you'll knit together the first st on the needle with the next k1 so you start the rib pattern as it says with a p1k1 etc. Probably the easiest way to do it is to just look at your sts, k2tog at the start of the needle and then knit the knits (the Vs) and purl the purls (bumps). That way you'll be sure to continue the column of sts for the rib correctly. The next to the last picture here
shows the join between the cable and the bias rib.
A similar thing is going to happen at the other end of the needle when you increase one st. On round 6 you'll have to incorporate that stitch into the k1p1 rib pattern.