Either method works.
You could either calculate the kinetic energy of each object individually then sum to get the total kinetic energy (it wouldn't matter that the two objects are moving at different speeds because you are calculating them separately). You could also look at the situation from the reference frame of one of the objects, in which case only the other object is moving, and then the kinetic energy of that other object is the total kinetic energy of the system.
Even though total momentum is conserved, kinetic energy by itself is not conserved. This means that different reference frames might show different amounts of kinetic energy in a system.
However all reference frames will agree that kinetic energy is conserved in an elastic collision.