resolved by performing these steps:

Re: remove xrandr 1.2 and let ati setup my screens
I ran into the same problem last week and was just trying to remember how I did 
it because a coworker wanted to know. So for your and his benefit...

Edit /etc/ati/amdpcsdb
In the section labeled [AMDPCSROOT/SYSTEM/DDX]
add this:
Code:

EnableRandR12=Sfalse

Also, in /etc/X11/xorg.conf in the "Device" section add:
Code:

Option      "EnableRandR12" "false"

Hope that helps.

thanks to ToeBee at the Ubuntu forums.

then. run catalyst control manager in administration mode and set
desktops to single desktop (multiple display(s)) - should be the bottom
option. You then need to reboot to save changes. At the terminal type:
sudo aticonfig --dtop=horizontal and follow the prompts. You should get
an error message. After this you can then change to a multi display
desktop by rebooting and changing settings through the catalyst control
center.

Not sure all the above is needed, but they are what i did to resolve the
issue.

** Changed in: xorg (Ubuntu)
       Status: New => Fix Committed

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https://bugs.launchpad.net/bugs/914713

Title:
  virtual display memory too small, primary display resolution incorrect

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