diff --git a/contracts/tests/UpdatedIdentityKernel.sol b/contracts/tests/UpdatedIdentityKernel.sol
new file mode 100644
index 0000000..fb9be92
--- /dev/null
+++ b/contracts/tests/UpdatedIdentityKernel.sol
@@ -0,0 +1,20 @@
+pragma solidity ^0.4.17;
+
+import "../identity/IdentityKernel.sol";
+
+contract UpdatedIdentityKernel is IdentityKernel {
+
+    function initIdentity(address _caller) external {
+        require(minimumApprovalsByKeyType[MANAGEMENT_KEY] == 0);
+        _addKey(bytes32(_caller), MANAGEMENT_KEY, 0);
+        minimumApprovalsByKeyType[MANAGEMENT_KEY] = 1;
+    }
+
+    event TestFunctionExecuted();
+
+    function test() public {
+        TestFunctionExecuted();
+    }
+
+    
+}
diff --git a/test/factory.js b/test/factory.js
index 2072256..8b12c39 100644
--- a/test/factory.js
+++ b/test/factory.js
@@ -1,21 +1,66 @@
 const TestUtils = require("./TestUtils.js")
 const Identity = artifacts.require("./identity/Identity.sol");
 const IdentityFactory = artifacts.require("./identity/IdentityFactory.sol");
+const UpdatableInstance = artifacts.require('./deploy/UpdatableInstance.sol');
+const UpdatedIdentityKernel = artifacts.require("./tests/UpdatedIdentityKernel.sol");
 
 contract('IdentityFactory', function(accounts) {
 
     let identityFactory;
+    let identity;
+    let updatedIdentity;
+    let updatedIdentityKernel;
 
-    beforeEach(async () => {
-        identityFactory = await IdentityFactory.new("0x0", {from: accounts[0]});     
+    before(async () => {
+        identityFactory = await IdentityFactory.new("0xaaa", {from: accounts[0]});     
     })
 
     describe("IdentityFactory()", () => {
+        it("Creates a new identity", async () => {
+            let tx = await identityFactory.createIdentity({from: accounts[0]});
+            const logEntry = tx.logs[0];
+            assert.strictEqual(logEntry.event, "IdentityCreated");
 
-        it("test1", async () => {
-
+            identity = await Identity.at(logEntry.args.instance, {from: accounts[0]})
+            
+            assert.equal(
+                await identity.getKeyPurpose(TestUtils.addressToBytes32(accounts[0])),
+                1,
+                identity.address + ".getKeyPurpose("+accounts[0]+") is not MANAGEMENT_KEY")
         });
 
+
+        it("Registers a updated identity contract", async() => {
+            updatedIdentityKernel = await UpdatedIdentityKernel.new({from: accounts[0]});
+            let tx = await identityFactory.setKernel(updatedIdentityKernel.address, "0xbbb");
+            assert.strictEqual(tx.logs[0].event, "NewKernel");
+        });
+
+        
+        it("Creates a new identity using latest version", async() => {
+            let tx = await identityFactory.createIdentity({from: accounts[0]});
+            const logEntry = tx.logs[0];
+            assert.strictEqual(logEntry.event, "IdentityCreated");
+
+            updatedIdentity = await UpdatedIdentityKernel.at(logEntry.args.instance, {from: accounts[0]})
+            tx = await updatedIdentity.test({from: accounts[0]});
+            assert.strictEqual(tx.logs[0].event, "TestFunctionExecuted");
+            
+            // Test if it still executes identity functions as expected
+            let baseIdentity = await Identity.at(updatedIdentity.address, {from: accounts[0]})
+            assert.equal(
+                await identity.getKeyPurpose(TestUtils.addressToBytes32(accounts[0])),
+                1,
+                identity.address + ".getKeyPurpose("+accounts[0]+") is not MANAGEMENT_KEY")
+        });
+
+
+        it("Updates an identity to the latest version", async() => {
+            
+        })
+
+
+
     });
 
 });
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