I think there is zero chance that these battle honors date from any time other than the initial issue/use of this flag. Indeed, the lettering style is identical to the battle honors on the 6th KY's flag, shadowing, commas, and all, except all of the letters on the 6th KY flag are slanted so that they were (more or less) parallel to the hoist, while on the 5th KY flag, only those letters for Ivy Mountain and Middle Creek are so-slanted, with Princeton and Chickamauga being straight (that is, perpendicular to the long axes of the fimbration pieces).

Regardless of font style dates, there is a photo of the 6th KY's flag taken ca. 1905, when it was returned from the War Dept. to KY, and the battle honors are clearly the same letters that can be seen today (although the fimbration pieces have deteriorated quite a bit since 1905). True, you can't see the tiny thin "shadow" marks because the image is not entirely clear, but the rest of the lettering matches. Another photo shows this flag at some undetermined later date (but not "modern"), after some further deterioration and repair, and in this photo, the "shadow" marks show clearly.

So, the 6th KY's flag was turned in to the War Dept. and stayed in that collection until 1905, with this style of lettering for the battle honors. The 5th KY's flag, taken in a different battle by a different unit, has stayed in private hands since 1864. But it has nearly identical lettering, obviously done by the same person. Perhaps two different people did the unit designations and the battle honors, but I don't see how it could be possible that these two flags had their battle honors applied after capture.